The Hindu : Study warns against taking ADB loan

Online edition of India's National Newspaper
Monday, Mar 29, 2004

Kerala

Kerala

Study warns against taking ADB loan

By Our Special Correspondent

THIRUVANANTHAPURAM, MARCH 28. A study by K. Ravi Raman, Associate Fellow of the Centre for Development Studies here, recommends against the State availing future instalments of the Asian Development Bank (ADB) loan, citing several negative aspects of the loan.

The study, The Asian Development Bank Loan for Kerala: The Adverse Implications and Search for Alternatives, published this month by the Centre under its working paper series, says that the State should tap internal resources in lieu of the loan.

It says that the once the entire loan is accepted, the annual debt servicing for the ADB loan alone would be within the range of Rs. 300 to Rs. 370 crores for about a decade. This would hit the already shrinking social sector expenditure, as the State would have to set apart much more than one-fourth of its total revenue receipts for debt servicing. (As neo-liberal reforms took root in Kerala, share of expenditure on health and education kept declining. The social allocation ratio dipped to 35 per cent in the mid-Nineties and further down to 33 per cent in 2000-01, far below the UNDP standard).

The ADB loan, the study adds, would be no cure for the debt overhang of the State. Rather, it would only accentuate the problem.

As alternative to ADB funds, the study recommends tapping of locked-up funds and extra domestic funds. It notes that total arrears of revenue due to the State come to about Rs. 3,071 crores. Realisation of a mere 20 per cent of these arrears could replace the second tranche of the ADB loan (Rs. 600 crores). Besides the arrears, there is an ever-increasing revenue loss from various generating sectors of the economy owing to under-assessment of tax, incorrect computation of agriculture income tax, exclusion of income from assessment, including those of luxury hotels and bars, non-realisation of potential value of forest produce and so on. The revenue lost on account of this during 2001-02 works out to be more than Rs. 500 crores.

Potential source of revenue such as the gold market and plantation sector was not being tapped. The sales tax revenue realised from the gold markets was only about Rs. 32 crores annually. It should have been five to six times this amount. Tax evasion in the sector had reached such heights that the analysis of returns filed by the 79 gold merchants and dealers in Thiruvananthapuram district shows sales amounting to a mere one sovereign per day in the case of 89 per cent of the merchants. Big plantations were paying only nominal rent on Government land leased to them.

Mr. Ravi Raman says there is immense possibility of internal resource mobilisation through market borrowing within RBI guidelines and mobilisation of loans from the cooperatives and commercial banks in preference to high cost loans from multilateral agencies such as the ADB. However, a major portion of the developmental bonds raised by the Government now went towards meeting salary disbursements and other revenue expenditure. After assuming power, the present Government had issued development bonds 18 times and the amount totalled Rs. 3,734.14 crores.

He notes that the ADB plays a lucrative source of procurement of contracts for multinationals from donor countries with local capital as junior partners. "Not surprisingly, the genesis of many of these corporate capital which have won ADB technical assistance contracts, may be traced back to policy-based lending with huge investments in infrastructure; and concomitantly, a new genre of comprador bureaucrats and academic consultants have been let loose in recipient countries."

He concludes that in addition to social de-spending and mounting of social debt, the ADB loan is likely to strike at the very roots of democracy in the State.

"The Modernising Government Programme and Fiscal Reforms, which promises to be a `paradigm shift in the way Government transacts its business' would in reality translate into an enforcement of the ADB diktat. With the imposition of its `common policy matrix', the very socio-political structure of Kerala would witness an upheaval — privatisation of PSUs, enhanced cost recovery for public utilities, including health, education and water, flexibilisation of labour, retrenchment and redeployment of `excess' staff in the name of rationalisation, suspension of fresh recruitment, deregulation and increased market `openness' are some of the radical alterations that would altogether reverse the social development model the State has thus far been proud of. Though there is no gainsaying that the `asset renewal' and `modernising governance' proposed by the ADB might bring in a few positive changes, it cannot be overemphasised that it would all be at considerable social and political cost."

Printer friendly page
Send this article to Friends by E-Mail

Kerala