Bengaluru Ministers & Corruption - in numbers

With so many high profile guys in jail, or at the door steps, one good thing that I see is that Media is becoming more and more comfortable carrying numbers in their reports on corruption. What we knew and heard through the 'grapevine', now has concrete numbers. But this is probably because of well documented and researched Lokayukta reports. Hopefully, some day, media would be able to do Lokayukta quality research on their own, or would not shy away from reporting corruption (which itself was rare, they just ignored the elephant in the room).

• Upper Bhadra Project. Kickback numbers are alleged, not proven. Project value 1033 Crore. Kickback Rs 13 Crore. Method. Preferred bidder was given the project, lowest bid was ignored.

The Hindu, Oct 26, 2011 (link):

Mr. Datta in his complaint had alleged that R N S Jyoti firm was the highest bidder for the project, quoting the cost at Rs. 1,033 crore, and Mr. Yeddyurappa had awarded the contract to it, ignoring the ... lowest bidder ... as a quid pro quo, R N S Jyoti firm transferred Rs. 13 crore to Davalagiri Developers and Sahyadri Healthcare, owned and managed by Mr. Yeddyurappa’s sons and son-in-law

• 325 acre Tech park near Devanahalli. Allegation. Kickback amount - Rs 87 Crore. Project size, can't readily find it

Business Standard, Aug 9, 2011 (link):

The Naidus are accused of taking a kickback of Rs 87 crore from Itasca Software for allotting 325 acres of land near Bangalore.

Deccan Chronicle, July 20, 2011

After the land was acquired without the consent of land owners, ... a kickback of `87 crore was transferred to the account of Indu Builders and Developers. The ... ‘front’ company ... owned by Mr Naidu’s wife

There are more - Upper Krishna Canal project, Mining related. All I am interested in is understanding the magnitude to figure

• How do they decide 13 crore or 87 crore?
• How exactly does it impact us - put a number to the "corruption tax" we are paying indirectly.

Taxes & Corruption - comparative figures/estimate for Karnataka?

Last week, GoI released some data on Direct Tax collections. I thought why not compare them against estimates of "alleged size" of corruption in Karnataka. Why should we compare only Direct Tax? Because to me, this corruption thing we hear about is like corporates and individuals paying additional direct tax. Lets start with data on Direct Taxes, source PIB Release ID 74516, Aug 12 2011.

• Total Direct Tax collections (4 months, Apr - July 2011) Rs.1,32,542 crore
  • Corporate Taxes: Rs 85,222 crore
  • Personal Income Tax: Rs.47,214 crore
• Net after Refunds: Rs.78,679 crore
  • 181% growth in refunds compared to last year !! So Net collections have reduced.
  • Rs.53,863 crore as against tax refund of Rs 19,021 crore made in the same period during last fiscal !

No data yet on Karnataka's share, but we could divide by 15 (as KA is big state, with IT hub Bangalore) to get an estimate. That comes to about  Rs 5200 Crore. Also, though most tax collection happens during these 4 months, lets leave 15% or so for rest of the months, shall we. All added up, full year direct tax collections from state of Karnataka could be around Rs 6000 Cr.

Now, where do we get data on "alleged size" of corruption in Karnataka. Lets refer to ex-IAS Vivek Kulkarni's famous article in Hindu Business Line (dated: Oct 28, 2010, link here if you missed it back then).

Conservative estimates show that, if all possibilities are implemented, a State government the size of Karnataka should yield Rs 3,000 crore per year.

3000 Crore per year. Vivek has used data and guesstimates to produce this number, for ex:, this from real-estate sector:

Construction permits and land registration are yet another big source of money. About 12 million sq ft of new concrete is built in Bangalore alone, every year. Karnataka has over 18 cities where real estate is booming. While the stamp duty and registration charges could be 7.5 per cent, the bribes can be at least 1 per cent. The Government collects over Rs 3,500 crore in official revenues. This implies that bribes could be close to Rs 500 crore.

A small check here - how conservative is this 500 Crore number? Averaging numbers from a few sample land deals I know (2nd hand info), For Rs 25 lakh worth transaction, value showed was Rs 5-6 lakhs, duty paid ~ 40K, and then 20K+ in bribes. The Rs 3500 crore number Mr Vivek Kulkarni has used are "declared values". 20K is 4% of the declared value. Now, since many big builders these days may be declaring close to real values, 4% estimate would be a bit high, lets lower it to 2% to account for good builders of Bangalore :)

So, we could revise the Rs 500 Cr estimate to about Rs 700 Crore. Next, if we apply the same adjustment to all his other "conservative" estimates. (700 Cr is 40% more than 500 Cr), we can bump up Rs 3000 Cr to Rs 4200 Crore.

So, yes, based on many approximations, but we are talking Rs 6000 Crore of direct tax collections vs Rs 4200 Crore (per year).

Caveats? Of course many. But we can see that the "indirect tax" we pay is sort of close to the direct taxes we pay to the central government.

Happy Independence day everyone!
- SB aka Pranav