The LDF-led Kerala government has had a busy time in the last few months with several central agencies engaged in investigating the various scams, allegations, and financial discrepancies in the state. Following this, the Pinarayi Vijayan government had alleged that this is a BJP-led Centre’s conspiracy to topple the Communist government in Kerala. The latest addition to this allegation is the Enforcement Directorate’s probe into KIIFB (Kerala Infrastructure Investment Fund Board) and masala bonds.
In a recent press meet, Thomas Isaac had alleged that the ED is using media to leak information regarding this. Highlighting an alleged text message that the Directorate had sent to a journalist, the Finance Minister called it a conspiracy. “The C and AG have found that the Kerala government has raised Rs 2,150 crore from the international market without the Centre’s consent, using Kerala Infrastructure Investment Fund Board. Wouldn’t that amount to a possible violation of FEMA. ‘KIIFB masala bond too has come under ED radar,’” the message said. Thomas Isaac explained that the last line in the message was a headline recommendation for journalists.
KIIFB is already under the scanner of the Comptroller and Auditor General in regards to the latter’s audit and the subsequent problems it has created. Finance Minister Thomas Isaac had revealed the audit report and alleged that they (C&AG) are trying to discredit the institution (KIIFB). However, the CAG and opposition parties have claimed that the Finance Minister had broken protocol while revealing the CAG audit report. Apparently, the report should remain confidential until it is presented in front of the assembly. This has the potential to be drawn out into a full-blown legal showdown between CAG and Kerala government.
On the other hand, with the ED expressing their interest in KIIFB and masala bonds, the state has another problem at their hand. The problem here is the Rs 2,150 that KIIFB raised via masala bonds in the London Stock Exchange. With the interest rate at 9.73%, KIIFB will have to return Rs 3,195.23 crore. During the initial discussions, senior members of the board and former secretaries have had told the Finance Minister and CM that they could have gotten loans at lower interest within the country. What has attracted more controversy is that the Canadian company CDPQ, which bought the majority of KIIFB’s masala bonds, also has a good investment in SNC-Lavalin — a company that has a history with Pinarayi Vijayan.
The ED has written to RBI regarding the apparent permission it granted to KIIFB and the Kerala government for issuing the masala bond. The question here is the validity of the masala bonds. The CAG audit and ED are of the opinion that the masala bonds issued by KIIFB had been unconstitutional. Until 2016, only the Centre could take loans from international markets, and the amendment to FEMA allowed corporates and body corporates to issue masala bonds. According to the Kerala government, KIIFB is a statutory body and this distinction allowed the institution to get RBI’s nod for masala bonds.
However, the CAG report claims otherwise. The audit report claims that since KIIFB’s loans will be a burden on the state as the latter is the guarantee. The state also gives money to KIIFB from their tax collection, leading the CAG to conclude that the state is KIIFB, and thus the borrowing is by the state, making the masala bonds unconstitutional.
Following the ED announcement and the controversial “text message”, the Finance Minister has claimed that the Directorate’s announcement in these matters is a breach of assembly privilege. He explained that any action concerning the CAG report would be taken in the assembly after it has been presented, and any probe from ED’s part concerning the report is a violation of the constitutional authority. The minister also made some strong accusations regarding the source of the ED probe. “How is the ED using the not-yet-released CAG report as a weapon? That means they got the report from somewhere else. The AG is demeaning their position by leaking information,” said Thomas. Ironically, the finance minister had recently called a press meet to complain about certain implications in the report before it was presented in front of the assembly, thereby breaking procedures.
As the opposition called foul, the minister had tried to explain away his actions by claiming that it was only a draft report, and when that didn’t work, he said that he knew what he was doing. He said that since the CAG report “was unconstitutional” he had no issues with breaking procedures and would apologise for it. As of now, the Finance Minister and the state government seemed to be standing strong and defending KIIFB against two central agencies.