Flood of WB loan, cess can’t clear haze of Kerala rebuild intents
News analysis

Flood of WB loan, cess can’t clear haze of Kerala rebuild intents


After the devastating August 2018 flood in Kerala, it had been heated discussions over raising money to fund the mega Rebuild Kerala plan.

A few things stand out in these fund-raising initiatives. The Kerala Government, the Union Government and the World Bank have signed a $250m (₹1,750 crore) loan agreement for the Resilient Kerala Programme. Kerala Finance Minister Thomas Isaac is hell bent on the flood cess of 1 per cent which in simple terms is a tax on tax that, despite his claim otherwise, will see price shooting up.

Going by official figures, it was 453 human lives lost in the flood, besides 80,000 houses damaged, 70,000 km of road network washed away and 140,000 hectares of standing crops destroyed. Lakhs of people had to take refuge in relief camps and many had to go back to shattered houses despite promises of being rebuilt.

Estimates by UN agencies as part of the Post-Disaster Needs Assessment (PDNA) show that ₹31,000 crore would be needed for recovery and rebuilding Kerala against a fiscal deficit of ₹23,957 crore in 2018-19. The amount needed based on 2018-19 prices should be more than 4 per cent of the State GDP, pointing to the fact that the exercise in the backdrop of the colossal figures is bound to be Herculean.

Keeping aside the rhetoric of Pinarayi, Isaac and team and doubts over how serious their intentions are, the glaring fact is the indifference of the Central Government in supporting Kerala. The Centre’s financial support taking into the consideration of the magnitude of the devastating disaster has been deplorable.

The features of the World Bank support are for improving the river basin and water infrastructure management, water supply and sanitation, sustainable agriculture, better farm risk insurance, scientific updating of land records, strengthening fiscal and public management capacities and risk-based urban planning among others.

Of this aid, $160 million comes with an interest of 1.5 per cent and a repayment period of 30 years. The balance has an interest of 4 per cent with a repayment period of 20 years and a grace one or moratorium of five years.

While the World Bank aid is a welcome initiative and a big relief to the State, it is the seriousness of the State Government’s intent in rebuilding the State that remains doubtful. When thousands are still forced to stay in fractured houses, the State Government in a brazen manner brought out an order to refurbish the Rebuild Kerala Initiative office in Thiruvananthapuram at a cost of Rs 88.5 lakh. The refurbishing includes air-conditioning and changing doors and floor on the controversial building taken on rent and is owned by the private Law Academy under the control of CPM leader Kaliyakode Krishnan Nair has a big say.

It has been a trickling flow of funds with the State Government's efforts to tap foreign sources, especially after the UAE Government offered a huge amount, was blocked by the Union Government on `policy grounds’.

Chief Minister Pinarayi Vijayan’s safari, mainly to the Gulf yielded ₹3.23 crore when the cost incurred was ₹3.27 lakh.

And after being deferred twice, the State Government is bent on imposing the flood cess of 1 per cent from August 1, which is simple terms is a tax on tax, despite concerns from several quarters. It is expected to bring in ₹600 crore.

Finance Minister Thomas Isaac’s claim is that after the Goods and Service Tax (GST) regime was introduced, the tax rate of many of the consumer products has come down to be in the 3-12 per cent bracket. It remains a fact that any hike in tax, be it even 1 per cent is bound to have an impact, especially when there are no rules governing MRP and will be ultimately be passed on to the consumer, even if Isaac claims otherwise. The same product can have different prices and the classic case pointed out by tax experts is that of bottled water whose price is not the same at a railway station and at a mall or cinema theatre.

The Minister was found silent when a member raised the issue of no trader ever having reduced the prices of essential commodities in proportion to tax cuts announced over the period. But that was not the case when taxes were hiked even marginally.

Isaac had a classic reply that such `misplaced fear’ would lead to an unwarranted fear and traders would certainly capitalise on this.

He says the cess is not a permanent one and would be for just two years and there would also be no trade diversion as feared.

Trade has expressed fears that there would be an impact on retailers, who deal in commodities which are competitively available in the online portals. Business during the flood, they say is yet to recoup from the flood and business is already 20-30 per cent down.

There are also issues as there would be no refund in the case of the cess.

But for Isaac, the GST regime is bound to deprive States of their authority to put in place independent revenue-generating measures.

The calamity cess now offered Kerala a “small manoeuvrability” within the GST system.

And when the GST Council approved such a cess, the first time for a State, its imposition could be viewed as a sort of `victory’ for the State which has been leading its fight for greater revenue-generation authority.

With no homework done so far on how to rebuild Kerala through planning at the grassroots level and those close to the powers-that-be allowed to flout all environment rules be it building resorts in ecologically fragile lands, resorting to landfills in wetlands and refusing to pull down unauthorised check dams despite court rulings, the intent of rebuilding still remains unclear even after the World Bank aid and the `victorious’ flood cess.