Defiant Kerala govt says KIIFB officials won’t appear for questioning by ED
- Kerala Finance Minister Thomas Isaac said the timing of the ED’s notice was deliberate since the masala bonds were floated two years ago.
A defiant Kerala government on Thursday made it clear that officials of the Kerala Infrastructure Investment Fund Board (KIIFB) will not appear for questioning by the Enforcement Directorate (ED) in connection with a case registered under the Foreign Exchange Management Act (FEMA).
“Nobody can brow beat us like this. Our officials won’t appear before the ED because we met all norms. If it persists, we will organize a mass movement against these agencies that only toe their master’s line,” said finance minister Thomas Isaac, who is the brain behind KIIFB and its funding through masala bonds
Isaac also attributed political motive to the ED’s notice ahead of the April 6 assembly election.
“The ED top official in Kochi is the son of a senior BJP leader in Rajasthan and he was specially brought to Kerala to trouble the government,” he said.
Isaac also said the timing of the ED’s notice was deliberate while the masala bonds were floated two years ago.
The Left Front government is particularly riled that the ED notice came just two day after Union Finance Minister Nirmala Sitaraman’s public meeting in Ernakulam in which she criticised the constitution of KIIFB and its budgetary provisions. “I don’t know what this organization is. All money is going to it. We also present budgets, but we never give all money to a body and say ‘we will see’. It seems quite weird,” she had said.
The ED had sent notices to KIIFB CEO K M Abraham, also a retired additional chief secretary, officials of the Axis Bank (banking partner) and others to appear before it on Friday in connection with a case registered under the FEMA. The central agency said by raising external funds through ‘masala bonds’ KIFFB had violated FEMA provisions.
On Wednesday, Chief Minister Pinarayi Vijayan wrote to the Election Commission saying the latest action was a violation of the poll code of conduct. Kerala will vote on April 6 in the assembly election.
The CM in his letter to Chief Election Commissioner Sunl Arora said the ED was acting at the behest of the Union finance minister and her statement during recent visit proved it. He sought the intervention of the EC as it was a clear violation of the poll code.
KIIFB and masala bonds
The KIIFB is a special purpose vehicle floated in 1999 on the lines of a corporate body for infrastructural development of the state. All development works in major sectors like education, health care, roads and bridges, power and water supply are being carried out through KIIFB. It was floated basically to cut red tape, fix responsibility and ensure better quality in works.
After the 2018 floods that ravaged the state, the fund-starved government had decided to tap ‘masala bonds’ which are specialised debt instruments issued outside the country in Indian rupee denomination. In 2019 KIIFB had listed masala bonds worth ₹2150 crore with 9 per cent interest for five-year tenure in London Stock Exchange. KIIFB became the first sub-sovereign entity to tap these bonds and the CM and his officials attended the bell ringing ceremony in the UK with much fanfare. The fund raised through masala bonds was used for several ongoing projects.
The Comptroller and Auditor General (CAG) was the first to question ‘masala bonds’ saying interest rate was quite high and it could result in loss to the exchequer. It also questioned whether the state government can undertake an external borrowing. Under Article 293 (1), the state can borrow within the territory of India but cannot raise any external loan without the consent of the government, it said. The ED had registered the case on similar ground.
But advocates of KIIFB said it was registered as a company under the Companies Act of India and it can raise funds for key infrastructural works. They also cited that permission was obtained from the Reserve Bank of India.
“Basically these people have no idea about KIIFB. They have mistaken it for an NBFC (non-banking financial companies). We have taken all necessary permissions,” said Isaac. He said it was weird to think that money sourced by a body corporate should be counted as a borrowing of the state government.