The off-Budget borrowings made by the Kerala Infrastructure Investment Fund Board (KIIFB) for critical infra projects have bypassed the limits set on government borrowings under Article 293 (1) of the Constitution and such borrowings do not have legislative approval, the Comptroller and Auditor General of India has opined.
The off-Budget borrowings are “not in accordance with the Constitution.” The borrowings are not taken into the disclosure statements in the Budget documents or in the accounts, the CAG has noted in the State Finance Audit Report for the year ending March 2019 that was laid in the Legislative Assembly with Finance Minister T.M. Thomas Isaac’s dissenting note on Monday.
The KIIFB had borrowed and raised funds amounting to ₹3,106.57 crore from financial institutions till 2018-19 by issue of bonds which were to be repaid from the petroleum cess and motor vehicle tax.An amount of ₹2,150 crore raised through Masala Bonds in foreign countries is part of the ₹3,106.57 crore off-Budget borrowings. The KIIFB had incurred an expenditure of ₹1,5,11.67 crore for various infra projects till 2018-19.
Liability of State
“Since the KIIFB has no source of income, the borrowings by the KIIFB for which the State stood as guarantor, may ultimately turn out to be a direct liability of the State government,” the CAG has pointed out.
Stating that such borrowings represent fiscal deficit of the State and should be treated as such, the CAG has said “Creating such liabilities, without disclosing them in the Budget raises questions both of transparency, and of inter-generational equity.”
RBI nod questionable
The approval given by the Reserve Bank of India (RBI) to the KIIFB to issue Masala Bonds is also questionable as the nod has allowed the State to route its own borrowing through the KIIFB. If the mode was followed by other States, the CAG said, the external liabilities of the country would rise substantially without the Centre knowing of creating such liabilities.
The CAG has said the State has to furnish to Centre all the financial statements showing the estimates of receipts and payments of all sources of borrowings, including Open Market borrowings, other liabilities arising out of Public Account transfers. Based on this, the 3% of the estimated GSDP has been fixed as the borrowing ceiling for Kerala.
The maximum amount of borrowings is done from Masala bonds, which are external borrowings. Entry 37 of the List 1 of the Seventh schedule of the Constitution gives powers of raising foreign loans only to the Centre. The entire repayments of the KIIFB is being done through own revenue resources and hence State borrowings. “They appear to be in violation of the Constitution and encroachment on the powers of the Centre,” the CAG said.
