A Theory on Price Determination and Concept of Values

All products, elements and resources must have value in order to be transacted or exchanged in terms of money or other similarly valued products, resources or elements. When there is a need for a product, resource or element a value is established usually in a currency so as to subsequently yield a price for the owner of the product, resource or element. However, the definition of value is quite different in this theory which means that value is not the same as price. Again, value as such may or may not yield the price justified for the product, resource or element as there are other exogenous factors influencing them. These will be discussed in details in the subsequent paragraphs.

Values, price and aura of receptivity

A value of a product or a resource or an element is determined by the cost of the thing for the owner and the nominal profit or no profit as the case may be for the owner. Symbolically the Value is represented as ‘V’ while the nominal profit as ‘np’ and cost as ‘c’.

Hence, it follows that V= c + np where np may or may not be there as per the discretion of the owner. For example the np may not be there if the owner gives the product, resource, or element for charity. However, the owner still incurs a cost that cannot be dismissed and this may be quite imperceptible or very high.

Hence while calculating price we need the value of the product, resource or element and another thing that is ‘aura of receptivity’ symbolically represented as ‘av’. It therefore follows that Price varies when ‘av’ too varies along with the V. Price is symbolized as P.

Therefore, the equation becomes

                             P = av + V where V includes both c and np or only c as the case may be.

For the moment we will keep the equation as it is and discuss what is ‘aura of receptivity’.

Aura of Receptivity

The aura of receptivity or ‘av’ is the additional value attained by the product, resource or element due to its scarcity in relation to all other scarce products, resources, elements listed in a schedule of a region, community, country or world, at different levels of their marketable value. Here, it is assumed that the listed schedule contains all the products, resources and elements of the place and they are written down in an ascending order of their value and starting from the least value to the highest value and according to the demand and supply of each of these existing then. 

Here, it is understood that value is achieved due to scarcity of each product, resource or element and the consequent increase and decrease in value is in relation to the value attained or discarded by each of the other products in the ascending or descending order of the scheduled list. The aura of receptivity symbolized as ‘av’ is an additional exogenous value that is independent of the cost and nominal profit or c + np.

Hence, the above equation P = av + V.

It is also to be noted that value alone may not be the determining factor for understanding the fair value of a product, resource or element as in some cases the scheduled list may contain similar or analogous products, resources or elements. Hence, the price advantage of one item in the list with other similar items depends upon the ‘av’.

To understand this better we must understand what ‘av’ is.  The aura of receptivity is the value attained by a product, resource or element the moment it makes its appearance before an owner or a potential owner. This value is independent of the value derived as Value as depicted here and that is c + np.

This also means that there is direct linear relationship between the Need of a person for a product, resource or element and that of Value of the same. In other words when

                        N = x then it follows that V= x as N = V.

Again, when N = 0 then V = 0.  (Here, N is the symbolic representation of the immediate need of a human being for a product, resource or element that will be consumed while V is the Value for the same as already shown above). It also follows that av is an independent variable and not dependent upon either N or V, but only to the extent that it accelerates in the order of small, medium to large magnitude from the lowest value order of a product, resource or element to the highest level order.

Here as shown above when N = 0 then V = 0 yet av is always positive in spite of this. This means that when the human need for an object is 0 av is positive as there is an aura of receptivity embedded in the object that at once makes av +. In other words, av can never attain the value of 0.

Why this is so? There is an immediate realization of a positive human emotion that gives av positive in relation to any of the products, resource or elements in the listed schedule.

This again follows that av is always greater than 1at any time while ascertaining the value of other objects in the scheduled list. 1 is the minimum acceleration of the independent variable for the lowest order of objects.

It follows then 1 < av < infinity

    

This means that the value of av fluctuates or varies between 1 and infinity.

Here, av is greatly influenced by human behavioral traits including emotions, psychological aspects, preferences and prejudices and social situations during its interaction with the V leading to a corresponding increase or decrease in price as per the ascending or descending order of the list of scheduled items.

This means if P = av + V then av = P – V which shows the extraordinary influence of av over that of the ultimate Price of a product, resource or element.

Why av is at once attained is due to certain conditionality that the independent variable has on an observer as will be shown below.  It would mean that av is at once positive the moment an observer perceives an object at any time or place.

The aura of receptivity or av to an observer is at once positive the moment his or her eyes rests on a scenic area, stones, sand dunes or any other objects. It is assumed here that av remains positive at all times to accelerate the value addition given to an object. Here, even if a person were to be disgusted at a scene or an object for the moment the same always carry a tendency to be valuable for the present or the future and also as per preferences of an individual, society or country and according to its conditionality.

This means that when the price of a product, resource or element of the scheduled list changes then there is a corresponding change of av too.

Symbolically this would mean ∆ P = ∆ av . ∆ V

Therefore it follows ∆ av = ∆p/ ∆ V

    

This would also mean that a product, resource or element may be substituted for another where there is relatively little or fractional change in av and thereby minimally or hardly affecting the price. This is especially seen in the lower levels and the middle levels of the scheduled list of items. On the upper portion of the list of schedule the av of product, resource or element attains ‘auction value’.

The ‘auction value’ is that value that by the very force of av on the object’s value makes it achieve very high price in the market like precious stones, rare artifacts, old coins, rare earths, pieces of meteor and others. At auction levels the maximization of price is generally affected for any of the items on the top of schedule.

It is to be noted that av of products, resources and elements at very low levels of the schedule are minute and therefore the changes in av is hardly perceptible. In fact, the higher level av moves it becomes more perceptible and in the middle order and upper parts av makes the objects of the list highly speculative when pricing is done as per their demand and supply condition in the market.

Conditionality of Aura of Receptivity

There are certain conditions that are attached to the aura of receptivity of a product, element or resource in the list of schedule of the same found in a region, country or the world.

·         The product, resource or element must be scarce for a long period of time. If an object is scarce today and then found in abundance after a year then av is heavily discounted according to its availability and demand.

·         An object’s physical appearance by itself creates a value for the observer.

·         The product, resource or element may or may not be directly consumed by the person and may be a store of value as it would significantly contribute to the price at a future date.

·         av having value at infinity would mean that the actual price may not be attained and therefore remain priceless.

·         av creates a significant psychological pressure on the owner possessing it to part with it and is generally influenced by human behaviors like hereditary traits, emotions, tastes, prejudices and preferences and also economic situation prevailing in a region, society and world.

·         av is always superior to V (c + np) however imperceptible it may be in all products, resources and elements.

·         av is less noticeable at lower levels than at the middle order and upper order in the schedule where it significantly influences the Prices of the products, resources or elements and attains ‘auction value’ in the upper limits of scheduled list. However, av is always in a state of progression right from the state when the product, resource or element is Valued at 0.

·         Higher the av greater is the risk taken by the owner for parting with it. This risk is not just security risk, but the psychological risk of parting with the object as well as the risk of speculative pricing.

·         av at middle and upper levels of the scheduled list makes the products, resources and elements highly speculative and hence is subject to volatile price fluctuations.

Examples along with Conditionality of ‘av’

If half a dozen school going children are playing in a compound and one of the boys happened to observe a piece of smooth pebble lying on the ground he quickly picks it up and places it on his palm and shows it to others. Here, the very act of doing so has had a positive affect on the boy as well as others giving ‘av’ to the value of the stone. Here, suppose this stone is simply an ordinary type found in abundance a little away then it losses its ‘av’ as it is attains its aura of receptivity only for a short term. For the boys this may be a new find, but in the adult world it may have no marketable value. Hence, one of the conditionality is that the ‘av’ must be scarce for a long period of time and this isn’t so in our example. Hence, av reduces to bare minimum if the stone is to be marketed.

Example with precious stones at a different part of the universe

Suppose a space craft is on a visit to another planet within our galaxy several million light years away. It is assumed that the space craft speeds away at several light years and by doing so do not convert itself into light ray or energy as per fundamental laws of nature. There are a few dozen people from earth and they are traveling to another planet having been invited by the alien planet by very friendly hosts.

Upon reaching the destination the human beings are asked to choose between a palatial building including a large garden made up of precious stones and another made of ice. Which one would the humans choose? According to the behavioral traits in the conditionality of av they would most probably choose the place made up of precious stones and discard the icy one.

The humans would do so without prior knowledge of the alien planet as the Price of the precious stones is always very high due to high av. This is as per the list of schedule of products, resources and elements on earth. On the alien planet there may be a different schedule altogether as some objects that are scarce on earth may be found plentiful there. Hence, it may be the ice or water that is scarce in relation to these precious stones or rather abundantly found stones there.

Yet the humans traits remain and these mislead at different places while ascertaining the av. Hence, av in greatly influenced by hereditary qualities, preferences, prejudices, tastes etc.

Water and diamonds

Suppose there is a merchant who while passing through a desert carrying three pieces of diamonds and some metal coins becomes thirsty mid way while crossing the desert. He had sold his merchandise in a town and in return has been paid three pieces of diamonds and the coins. Luckily, he knew his way around even in the most arid desert. He chances upon finding an oasis and stops to take a drink.

Here, he is confronted by a man who claims that the oasis is his private property and no one can drink without paying him. The merchant asks as to what is the price of water. The man demands the purse containing the three diamonds as the price. The merchant stubbornly refuses in spite of his extreme thirst and settles for only for the whole lot of metal coins that he is carrying.

Here, if the owner of the oasis agrees then the merchant would pass on all the metal coins without any hesitation. However, if the owner of the oasis doesn’t yield to this and demands the diamond then the merchant may walk off despite the thirst for water thinking that another oasis may be there somewhere at a distance.

The merchant may forgo the water by not parting with the diamond even if he is risking his own life. This is because in the list of schedule of products, resources and elements the diamond has very high ‘av’ and may turn a man blind to necessities and immediate amenities of life. Here, scarcity, hereditary traits, possessiveness, feeling of worth would be more prominent than the thirst of water. If the merchant knew his way around then he may not part with even one diamond while if he is not sure of getting water he may at the most part with only one diamond, but not without a furious argument.

This is so in the case of a desert scene while in other places where basic amenities are guaranteed a person would always feel more possessive towards precious stones than water as the former has a much higher av.

Example of Prices of two different pieces of clothing

Suppose a textile showroom at the heart of a town is selling clothing for women. A customer, a lady, inspects two dresses of almost the same type yet spun with different yarn. She looks at the first dress Q which is actually of finer quality of yarn make and perceptible at first sight for those who know about cloths. She also looks at the other dress Z which is slightly inferior yet not quite perceptible at first sight.

The lady looks as the price and sees the sticker which states that dress Q is priced at 1000 rupees while the other dress Z is priced at 800 rupees. Both the cloths are of current fashion and plain designs. Looking at her hesitation the counter girl turns and brings out yet another dress SL of the same type priced at 1100 rupees.

The dress SL is of the same quality as that of dress Z yet has some embroidery work and some artificial embellishments. Here, the av of dress SL shoots up and even beats the price of Q which is of high quality. The lady purchases dress SL without hesitation in spite of the fact that the cost of the extra embroidery work and the embellishments on dress SL actually cost only 900 rupees and no more and still way below the price of the quality dress Q.

Here, av of the dress SL is speculative and fluctuates according to individual preferences, tastes and the way it is presented to the customer.

Example of two financial packages

Suppose there are two companies having similar financial products for their customers. Both products are priced similarly and they compete with one another for market space. In course of time the competition becomes stiff and therefore one of the companies namely JM & Co dresses up its product including a few tempting extra benefits that would slightly lessen its profitability, but in the long run give an edge in the market over its nearest rival UO & Co and better pricing advantage.

Here, JM & Co attains a higher av due to its receptivity among the customers and even helps it forming a wider base of clients and therefore there is a marginal increase in its price after a year. However, in due course of time the directors of the company become greedy and start to make a series of bad investment for quick returns elsewhere. They even manipulate the funds of the company.

Initially, the situation of JM & Co was much better than UO & Co as the av of JM was more than the latter company. Here initially, the P of JM may still be equal to P of UO yet in the long run the advantage of raising the price for the former company is much more than the latter company.

When the directors became involved in malpractices av of JM & Co became unsustainable and therefore has to be reduced as the public came to know about it too.

Symbolically, 

                    av (JM)  is less than proportionate to av (UO) in spite of equal price and greater benefits offered by JM & Co.

The crash in av was quite obvious as JM & Co wasn’t going to improve its performance for several years from now due to misappropriation of funds. Hence, the av of JM & Co crashes so dramatically that its value becomes much less than the av of UO & Co.

If suppose when the av of JM & Co was raised in value to the special benefits added to its product package then we may call it as situation ‘av1’.  Subsequently when the av crashed the situation became namely ‘av2’.

Hence, the difference of av1- av2 is the range where the speculative price of the financial product starts to fluctuate in a volatile way making end consumers suffers enormous losses. Hence, for av to be relatively stable in such firms it should be backed with systematic principles and fundamentals of value additions. Here, gambling with the fund of the company is not the solution for having stable and sustainable av.

Example of two bright students

Suppose there are two bright students X & Y having scored more or less the same marks in their college and are equally smart.  They both go for interview in a large multinational company. Depending upon the same subjects that both have studied both is sure to get the jobs on the same scale as the company has several openings.

If on the other hand X has received a year’s training prior to his or her applying for the job then the av of X rises up sharply when compared to that of Y. This is because X has been able to fulfill a desire that is scarce in relation to the job application by Y. In this case X is liable to get more Price or Pay than Y from the company.

It follows that a higher av always give an edge to a person in the job market over and above the value V.

Example of coins

If there are 2 coins made of the same metal and having same shape and weight. One of the coins ‘r’ is older than the other coin ‘h’ by at least 500 years. If the coin r is in aged condition and having some parts of its metal corroded due to wear and tear it still holds a better av than coin h due to its scarcity and age. While determining the price of coin r in the market its auction value is ascertained as av is supposed to be several folds higher up in value than the av of coin h and hence a much higher price.

Tastes, prejudices, age, scarcity and preferences play a vital role in influencing av of a product, resource or element.

Example of choice and preference on av

Suppose a person is holding a senior position in a large company in a city and is living with his family in an exclusively constructed large villa. He is drawing a salary of say 100000 rupees monthly and in Indian conditions this is really good. He also has a higher av compared to most others of his profession and therefore there is no reason as to why he should get a lower salary.

However, not withstanding his high av he resigns from the company by being offered an equally challenging post of 80000 rupees monthly. He does this by preference and choice and for the well being of his family. It is seen that the earlier city was highly polluted while the later job was situated in a scenic place with clean atmosphere.

Here, in spite of his high marketable av the man settles for less Price due to health and family reasons. Hence, it is seen that av differs according to personal preferences, tastes and circumstances.

Why Kerala is fast becoming a Perpetual Revenue Deficit State?

Before we make unnecessary comments we must understand the overall perspective of Kerala’s economy in the larger framework of the whole country. It is only looking into the past and present patterns of economy of Kerala that we may be able to establish beyond doubt the whole problem besetting the state. It is understood that without diagnosing the disease it is impossible to suggest proper treatments and the same is true for the economy of any state. Kerala has made tremendous stride in enhancing the standard of living within the state as well as has improved the social welfare system that is far above the national average. This has been made possible by the significant contribution of the people who had migrated to the Middle East and were able to bring in huge foreign exchange as well as increase the social spending. Due to the tremendous flow of foreign remittances from abroad the society became transformed and lush with moneyed people. This was in sharp contrast to other states within the country.

Perhaps to counter the growing free money flow and general rice in prices of all essential commodities and properties as well lack of proper labor protection by erstwhile state governments and also with the due acknowledgement that all the money that flows into the state is never going to reach the poorer population, the left parties became a formidable force in the state. Not necessarily the left point of view were in tandem with left parties in West Bengal and Tripura and in other states where they had a good hold during the emergency period and after, the left of Kerala were more focused on the state’s soil and had their own labor policies that were more rigid than in other states. So over a period of time the state always swung its political pendulum to the left or the center left at one time or another during elections continuing with the easy policy of foreign money and hiking wage rates within. Yet basically no one knew what was the growing problem with Kerala’s economy and the way its huge inflows of fund from abroad ought to have been utilized and that too in line with the state’s policy and social welfare system that is touted as the best in the country. Of course, so far the going was good for all these decades since the early sixties when workers from Kerala saw an opportunity of significant wage differentials between working in their own state and that in the Middle East, and as a result enabled a large flow of people to migrate to the Gulf countries to become rich. Even the education system got a tremendous boost due to the certification process for Gulf jobs and perhaps made the state literate enough although lacking on higher level value based education for professional job markets. However, things are changing on the ground, but not on the level required of a highly literate state.

Kerala’s Extended Economy Status

Unlike any other states in India, Kerala’s economy is an ‘extended economy’ with part under political control and the other part under no control and this means politically free. One must look at things from this dimension as it would be quite impossible to note the difference and understand the financial problems in its true perspective other than by this method. A state, as we all know, is called a state if there is an almost equal control of the economy and also political control.

However, this is not possible as these are two separate regions (economically) where one belongs to the Indian union while the other is a foreign country. However, from the economic point of view Kerala has always held a unique position of openly embracing the remittance money that ought to have spurted out economic activities within the state for sustainable social development. But unfortunately this never did happen as the state would always find itself in dire straits financially trying to fund many projects of social importance and inevitably falling short of goals and targets due to shortage of money.

While most other states have their own natural resources Kerala never has any except for its human resources. This is the reason why the worst revenue deficit states in India namely Bihar, Orissa and others have something to bank upon in the future, Kerala has nothing save its human resource. However, the type of human resources that have been prominently seen in the state may soon be out competed by other states in the future. However, assuming that Kerala has an edge over others in the near future it should be the state policy to raise the standard of education beyond the school and graduate levels for sustaining the competitive edge of its human resources.

However, the above point is only a suggestion and though important do not have a bearing on the financial problem that is being discussed here.

It would be imperative to point out at this juncture that unlike other natural resources that are static and remain within the boundary of a state, human resources are mobile and therefore there is need for a separate strategy altogether so as to attract money to a fund starved state government. It is one thing to have individuals holding a lot of money and spending according to their sweet will and a different thing altogether when it is held in the exchequer by the government. While static resources may be tapped or exploited by the government and raise revenues by profits and taxes, the human resource have a mind of their own and are almost always nomadic.

Hence, the distinction between the two is of utmost importance for states that rely heavily on its human resources for bringing in revenue.

What is an ‘extended economy’?

An extended economy would be an economy where there is equal or greater dependence upon source of income from other region (Middle East in this case) and lesser budgetary provision for money derived within the state in the form of taxes and duties and revenue from government undertakings and investments. In the case of Kerala it must be seen that the extended economy operates very much in the line with pure laissez-faire kind of activities on one side where there is no political control and on the other side in sharp contrast a socialistic setup where there is political control.  Although both ought to have balanced out and brought about the much needed equilibrium for the state’s finance and balance sheet unfortunately never happened in reality as there was the technical flaw of channeling remittances coming from abroad for the developmental activities of the state.

The matter assumes serious proportion as the remittances were freely flowing in and there were no apparatus to check or channel the fund for proper usage within the state. Here, the government was left with no options, but to allow money to flow in and do the needful without proper leash on what the money does. In other words, the extended economy had no political control while within the state other forms of revenue flows were well under control. This matter became compounded as Kerala was hugely dependent upon the flow of remittances from abroad that were in the tune of 50,000 to 60,000 cores of rupees annually.

It is no secret that most of the remittance that flowed into the state went to real estates investments and other unproductive sectors of the economy as those who brought in the money were generally never questioned by rules and regulation or by law. This would be the case with other states too where dependence upon foreign remittances by their overseas citizens became far greater than the revenue yielding capacity within the state.

It wouldn’t be surprising when other states with rich natural resources became revenue surplus, sooner or later, Kerala government in spite of its wealthy population would be going to Delhi forever with a bowl to balance its perennial revenue deficits.

Spending at will by Repatriates

Kerala’s economy is a free for all of those who are repatriates and they spend according to their whims and fancies spiking up prices of real estates, gold and other forms that have no bearing in the actual economical development of the state. It must be understood that free flow of money need not necessarily bring about social justice to the populace that live in poverty within the state nor do they generate employment in a sustainable way. For this to materialize the government ought to step in and channelize the flowing fund for infrastructure projects, commercial investments and building other institutions for the overall improvement of the economic system. Besides, the existing practice of hiking prices of all things several folds due to the easy spending by repatriates have negated much of the social development process. What one sees in Kerala is unbridled capitalism on one side through foreign remittances and on the other side straining to bring about economic and social justice for those living within the state. The two do not match due to un-channeled flow of funds. This would inevitably create revenue deficit for the state in the short as well as long run.

Why is this flow of remittance akin to unbridled capitalism? Usually, money that flows in unchecked, attracting no taxes, spending without being subject to scrutiny and allowed to be invested in scarce factors of production and commodities is nothing but unbridled capitalism on the loose. Since, many politicians have no idea about economics it is seen that even those who are leftists are themselves involved in this game hiking prices of land and other commodities as if it were the right way to carry on with these kinds of businesses.

Unfortunately, this unbridled capitalism paves way for all the vices that may ensue in a growing consumerist economy.

Economy of the bottle

This has been a raging political debate within the state for sometime and the present government has greatly reduced the intake of alcohol within the state and has plans to wrap up hot drinks and make Kerala a liquor free region within 10 years period. This is a commendable action as otherwise the supply chain activities of the bottle economy would mean that all the other associated sectors including social life would be straining towards making liquor a part of everyday life of the state’s citizens. The enormous negative effect of the whole thing may have to be borne by the women and children and thereby has a negative impact on family life as a whole. Hence, having a policy like this in force would go a great way in reducing alcohol consumption by all and sundry within the state.

It is to be noted in this context that citizens may be able to save better by improving the quality of life that gets enhanced with the prohibition. It is no secret that around 60 to 70% and perhaps more of monthly wages of a regular laborer go for expenses in alcohol consumption and other associated entertainments. In other words, there could be better consumption pattern with expenses being mooted in other supply chain activities that are positive to the society.

In economics there are no countries in the world that do not have an economy worth noting. Even in Somalia there is a thronging economy albeit with piracy and other nefarious activities. Even in some South Asian and South American countries the total narcotic sale forms a significant part of these countries GDP including prostitution and arms trade as supply chain activities. In short, in order to establish a justifiable society there is need to lay stress on socially acceptable practice and this means choosing the right kind of supply chain activities.

Economy means any activities commercial or otherwise and the supply chain may be anything that could be added to the overall GDP and it is for the social scientists, political leaders, social philosophers, environmentalists and thinkers to choose as to which option is the best. In economics all data are collected and connected with the GDP and there is no such discrimination between what is socially right and wrong. It is by studying the segregated data that social thinkers and politicians try to get the fuller knowledge about the economy and how much transitions are taking place from one sector (bad or good) to the other ( bad or good) and whether rectification or remedy has to be planned and implemented.

Why had alcohol become so rampant in Kerala? The prime reason for this is the unbridled spending by repatriates who indirectly hiked wages and so also other factors of production and created rampant consumerism without productive investment strategies. Here, it is the government that ought to channelize these funds for employment generation and sustainable growth of the state’s economy to create revenue surplus. In the short run therefore the government with implementation of prohibition would face severe cash crunch and it would be imperative to think of other supply chain activities including family tourism and medical tourism of which Kerala has an edge due to its excellent social security network and better policing than other states in India.

Although GST may solve the problem to some extent in the context of Kerala this by itself isn’t sufficient and there is need to look for other options as well. Without deviating from our initial argument it would be imperative to point out here that the bottle economy is a side effect of the free fund flow that the state has seen over the years. Hence, there is need to understand the link between proper social spending and improper expenses.

What is the solution?

Fist Option

There are only two possible solutions to this problem. The state may impose taxation @ 5 to 10% or more on all foreign remittances. The same has been articulated by many of Kerala’s economist a year or two back. However, this solution has its positive and negative aspects which must be taken due note of.

Pros

·         The state would easily get money to fund some of the projects that are essential for the people living within the state.

·         The state wouldn’t need to be bothered if the sales tax gets replaced with the introduction of the GST in the short or long run.

·         The state can look after the rehabilitation program for the repatriates who were forced to return from war torn countries.

·         It can introduce quality health care system and education system and improve other social network with the money.

Cons

·         The state may suffer some loss of repatriate money if the same is routed through other states

·         The state possibly drive investment into other states than within its own territory

Second Option

The other option is to introduce a unique method by creating a compulsory pooling of foreign remittances so that the fund could be utilized by the government. This is a totally different method and may be named as Refundable Tax Pooling Method or RTPM. In this method, unheard of perhaps anywhere else, is to tax all revenue flows at a percentage or slab rate. This means the taxes would be collected compulsorily through the bank accounts of the repatriates and the same would then be refunded back only after a period of five or ten years or even more with or without interest as the government may wish to. Here, a large amount of money would find its way into the exchequer for starting of completing important socially and commercially viable project by the government so that the same entity could yield revenue in the form of profits and taxes to the state government.

The above method is unlike bond purchases as the latter need lump sum money and that too at fixed rates. This method has to be evolved because the government would in an excellent position to compulsorily extract a percentage of money going otherwise into the mainstream consumer driven Kerala economy. Again, the sums of remittances may vary and it is only over a year or more that a lump sum could be allocated into each individual accounts for refund at a distant future date. This is only possible with a tax program rather than bond buying. Further, the sums may vary and may be very small to sizeable and having an incremental RTPM structure could go a long way in addressing the problem. The repatriates under this program ought to be taxed on the revenue they bring in and not on their salary certificates which would unnecessarily complicate the process.

It is also a fact that other states too may in the future have the same kind of problem with repatriate money as their own human resources becomes mobile and go abroad for employment and therefore the Central government needs to be a participant in the whole system and do not allow other states to take undue advantage of diverting the flow of remittances.

Pros

·         The repatriates do not loose their money unlike other taxes, but the same is withheld for government use and refunded back after a period of time.

·         The repatriate do not come under pressure to spend the whole amount in their home town and would be able to avoid wasteful expenses

·         The repatriates may utilize the money thus refunded after a period of five or ten or more years for other long term positive plans for their own purpose or setting up businesses.

·         The government would be spending only on socially and commercially viable projects so that it would generate revenue and not spend the same on charity.

Cons

·         The same needs to be passed through a legislation with the approval of the Central government

·         There may be initial protest against such an action by the repatriates as it would mean they wouldn’t be allowed to spend the entire money they bring in as they please

·         There is need for proper monitoring and proper technology or otherwise individuals may try to route their money through other channels that are not screened

·         There is need for a comprehensive program so as to account smaller bulk amounts to large bulk amounts as and when the are remitted into the bank accounts of the country

Once such a method is in place then it would take care of the current revenue deficits as well as deficits of the future quite well. The only catch is that the money shouldn’t be diverted to charity and unproductive sector as after all at the end of the day in the Balance Sheet it is still a liability. On the other hand if the fund is well invested then it can yield profits as well as taxes to the government so as to pay the refund. The latter option is by far better as foreign remittances are after all earned out of hard labor.

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