Finance Minister Thomas Isaac to pool Rs 10,000 crore off budget

THIRUVANANTHAPURAM: On July 8,  when Finance Minister Dr T.M. Thomas Isaac presents his ‘Alteration Memorandum,’  he is expected to target an off-budget capital infusion of Rs 10,000 crore for the 2016-17 fiscal. To achieve this, Dr Isaac will bank on two unique instruments: one, a special purpose vehicle to bring in funds for infrastructure development, and the other, an ‘Islamic bank’ to get funds locked up in the Gulf for big projects that further a social cause.

The SPV, which will do the borrowing for the government, will be created out of autonomous bodies like Road Fund Board or Roads and Bridges Corporation. But first, Dr Isaac will restructure these companies and an independent board of directors will be installed. To give the SPV a high credit rating, the government itself will stand guarantee. Three to six months of revenue from the motor vehicles’ tax every year shall be deposited in an escrow account. “There will be assured payback,” a top finance department official said.

Legislation would be introduced to ensure the uninterrupted flow of this tax money to the SPV. “The Governor’s address has already promised legislation to insulate investors from political risks,” the source said. The SPV will also be asked to mobilise its own resources, say from advertisements and land development. Dr Isaac himself had mooted the idea in his farewell budget in 2011. “If there is a legally protected source of income which guarantees regular repayment of loans, the SPV can mobilise loans from the market,” he had then said.  

Islamic banking, another of Dr Isaac’s pet ideas, could be the second option to bring in capital investment. The finance minister has already voiced his desire to tap the potential of Cheraman Financial Services (CFS) to promote projects of a welfare nature. Being a non-banking financial company operating on the principles of Shariat Law, CFS will not accept deposits.

But Dr Isaac’s plan is to get the NBFC to mobilise Rs 500-Rs 1000 crore through the share route. This money can be used to transform, say, a small Rs 20-crore company like Kerala State Drugs and Pharmaceuticals (KSDP) into a modernised pharmaceutical manufacturing behemoth.

While roping in an Islamic bank like CFS, Dr Isaac is eyeing huge funds locked up in the Gulf. “There is lot of money lying idle in the Gulf that would be channeled only into Shariat-compliant products,” said former bureaucrat T. Balakrishnan, a director of CFS.