Doubts raised over savings scheme for Kerala expats
The Congress-led opposition in Kerala has asked the state government to clear all ambiguity over the new savings scheme for expatriates it plans to launch next month.
Opposition leader Ramesh Chennithala said Finance Minister Thomas Isaac was deliberately misleading people on the Pravasi Chitty scheme.
“Isaac is trying to mislead people by creating a smokescreen,” he said in a statement here yesterday.
“The scheme lacks transparency, and it’s illegal as it does not provide the mandatory security to subscribers,” Chennithala claimed.
In a chit fund or chitty, the subscribers pay a monthly instalment to get back in a lump sum amount through auction or by the draw of a lot.
The state-run Kerala State Financial Enterprises (KSFE) is the administrators of the scheme, and the Kerala Infrastructure Investment Fund Board (KIIFB) manages the funds.
The state has set target of raising Rs100bn ($1.49bn) through the scheme this year to build two highways, and the authorities were expecting 200,000 subscribers in the first year.
Isaac hopes to tap the funds expats send to their families every month.
The opposition claims the government had not received the permission of the banking regulator for the scheme and it could end up paying the penalty for not providing security for the equal amount they collect.
The cash-strapped state which ranks 21st in the ease of doing business - spends all its revenue on salaries, pensions and debt servicing.
It is now sitting on a massive public debt of Rs2.07tn ($31bn), and the dip in overseas remittances has hit its service-sector driven economy hard.
As it has crossed the borrowing limit, the state wants to use the Pravasi Chitty scheme funds for infrastructure building like hightech classrooms. The state has set a target of collecting Rs500bn in five years through the scheme.
“Isaac is hoodwinking people without answering the questions K M Mani (his predecessor as finance minister) raised,” Chennithala claimed.
“He has presented the scheme without even reading the federal laws on starting one. He owes the people an explanation,” Chennithala said.
Rejecting Chennithala’s claims that the scheme lacked regulatory sanctions and is hence illegal, Isaac said he was confident of raising Rs100bn from the scheme immediately.
Though the minister claims he has all the statutory clearances, opposition leaders are not satisfied as Isaac was unable support his claims with documentary evidence.
They say the scheme documents are ambiguous and contradictory to the law, which does not allow the government to divert funds to KIIFB bonds as planned.
If KSFE wishes to start chitties for such enormous amounts, it needs to deposit an equal amount in a licensed bank, not KIIFB, and give a guarantee to investors.
When the question came up in the assembly, Chennithala said, Isaac had said he would deposit the security money with the KIIFB before accepting funds from the expats.
But the law and the banking regulator do not allow a chitty without a security deposit in a scheduled bank, they argue. Enrolling expats in such a scheme without any security is illegal, they added.