Rebuilding Kerala, transparently

The Kerala government must come out with a white paper in the context of financing the rebuilding programme and the many off budget projects underway. Nearly five months have passed since the devastating floods and landslides wreaked havoc on Kerala affecting 5.4 million people and replacing 1.4 million households.

The Post Disaster Need Assessment (PDNA) Report produced jointly by an international team of experts and the Kerala government puts the cost of recovery and reconstruction at ₹31,000 crore at 2018-19 prices. This is 4 per cent of the GSDP. Making it a five-year project of rebuilding means ₹6,200 crore per annum and allowing for beneficiary and private sector contributions, this would work out to ₹4,030 crore.

Rebuilding certainly can cost more depending on the scale of the design envisaged. True, there is already a colossal fiscal deficit to the tune of ₹23,957 crore in 2018-19. Even so, the cost of recovery is within the realm of feasibility. Given the multiple scheme of financing development as well as the rebuilding project underway in the State, some within the Budget (as per Article 202 of the Constitution) and others off the Budget, a white paper that will put the State public finance in proper perspective seems to be a step in the right direction.

Kerala is deeply divided politically. If politics means social action for a common goal, Kerala’s political praxis leaves much to be desired. It is therefore important to work out a common ground — a sort of ‘Venn diagram’ approach — because rebuilding is essential for the people.

The project to be sure is non-negotiable while the content needs be debated. The most important prerequisite is to ensure some transparency guarantees such as avoiding underhand dealings, corruption, impartial adherence to rule of law, and so on.

The rent seeking factor

No society can meaningfully function without some presumption of trust and openness that citizens can count upon. The infrastructure restoration cost of ₹15,882 crore announced in the Governor’s speech on January 25 is a mouth-watering hanging fruit that will attract the rent-seeking lobby. Rent-seeking politics and the growing disregard for rule of law can never be the basis for rebuilding Kerala.

A white paper that will spell out the sources and uses of funding along with a frank critique of fiscal management of the past as well as the differences envisaged under the new dispensation is a credible measure to enhance trust.

The PDNA report provides an excellent launching pad. This has to be underpinned and elaborated with a clear collective vision for ushering in ‘a green State’ with an integrated water and land-use approach enlisting the local government system currently underplayed as a natural partner into the rebuilding project.

There are two aspects that need to be stressed. While the white paper should provide a self-evaluation of the fiscal management of the last five years which should serve as the road-map for remedial action, it should also spell out the case for a white paper.

The State has seldom achieved many of the targets fixed in the Medium Term Fiscal Plan. There has been heavy tax revenue losses due to tax evasion and avoidance which could easily be around ₹20,000 crore. The yawning gap between interest payments and pension payments since 2009-10 should be a serious concern of the State government. It is important to bring this to the notice of the civil servants as well as to the public.

Raising the retirement age to 60 years, suspending the five-year pay-revision commission, pruning wasteful expenditures and so on will have to be reexamined now. Persistent savings in Budget allocations and imprudent demand for supplementary grants are signs of poor fiscal management.

That the State Disaster Management Authority constituted in 2011, utilised only a little over 43 per cent of the funds in the test-checked districts by the CAG from April 2012 through March 2017 shows the continued inefficiency of this institution which is mandated to ensure protective preparedness against disasters.

The response of the administration to meet the challenges of the new governance system should be calibrated. In sum an honest review of fiscal management may be made, from which new reform options should emerge.

Fiscally feasible

The PDNA estimate of ₹31,000 crore for five years works out to ₹6,200 crore per annum and allowing for a 5-7 per cent inflation is certainly within the realm of feasibility. Given Kerala’s tax revenue potential to be mobilised through prudent fiscal management and the enthusiastic response to finance the recovery and rebuilding project by the people, achieving the goal is not an uphill task.

But it is important to tell the people how the various sources of funding notably, the KIIFB (Kerala Infrastructure Investment Fund Board), created ostensibly to circumvent the FRBM constraints, will be gelled with the entire scheme of development finance. According to the Governor’s speech in the Assembly, the KIIFB has approved 500 projects costing ₹41,000 crore and is heading towards ₹50,000 crore.

KIIFB has an ambitious programme of market borrowing. But only three of the projects seem to be explicitly self-liquidating. Transparency demands a discussion on the implications of the scheme of financing and repayments although tapping the Masala bond market, dependence on Pravasi Chitty sources and so on are made explicit.

The State’s total debt stock as per 2018-19 Budget is over ₹2,37,265 crore which is nearly 31 per cent of the GSDP. The FRBM Review Committee sets out a debt norm of 20 per cent for States. To build public confidence presumably the larger canvas of public finance may be discussed more comprehensively and transparently.

The Chief Minister’s Disaster Relief Fund (CMDRF) is heading towards ₹3,000 crore. If the government employees and if some from the diaspora contribute to the funds at regular intervals a steady flow of funds could be ensured.

The World Bank and Asian Development Bank are expected to provide ₹7,000 crore. The Corporate Social Responsibility (CSR) source is being explored and could easily yield ₹150 crore per annum. Though the much touted crowd-funding did not seem to have yielded good results there is tremendous potential.

Reportedly projects are created on a crowd funding platform by government departments engaged in the reconstruction efforts. Once projects are displayed on the portal, it could be funded by donors, be they individuals or institutions anywhere across the globe. It is learnt that many projects are structured to fit into the CSR scheme framework and KPMG, whose credibility is widely questioned most recently in the UK, is playing a crucial role in this domain.

Utilisation of the National Disaster Response Fund, additional funds via centrally sponsored schemes are expected to provide over ₹5,000 crore. The scheme of additional taxation notably via the 1 per cent of cess on GST for next two years, the magnitude of borrowing envisaged beyond FRBM ceilings, including the KIIFB funding and so on call for a white paper which will spell out in detail the sources and sources of funding that is underway.

In sum the case for the white paper is but to enhance transparency. Undoubtedly public money has to be spent with wisdom, faithfulness and efficiency.

The writer is Honorary Fellow, Centre for Development Studies, Thiruvananthapuram

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