Kerala: Why is KIIFB Targeted by the Enforcement Directorate?

The Enforcement Directorate (ED) has once again issued summons to Thomas Issac, former finance minister of Kerala, on the issue of masala bonds published by the KIIFB (Kerala Infrastructure Investment Fund Board).

The ED has issued the notice based on the Comptroller and Auditor General (CAG) report for alleged violations in the financial dealings of the KIIFB during the previous tenure of the Left Democratic Front (LDF) government. The 'masala bonds' issued by the KIIFB are also being termed illegal.

The operations of the KIIFB were also 'questioned' by the Union finance minister Nirmala Sitaraman, while other Bharatiya Janata Party (BJP) have also traded guns against the KIIFB.

Meanwhile, the KIIFB continues to play a crucial role in the infrastructure development of the state, with projects worth Rs 73,869 crore being approved.

The LDF and Communist Party of India (Marxist) [CPI(M)] have accused the Union government of arm-twisting the central agencies with a political vendetta and attempting to destabilise the Kerala government, which is presenting a people-friendly alternate model.

'WON'T APPEAR BEFORE ED'

The second notice issued to Issac has directed him to appear before the ED on August 11 in its Kochi office on alleged violations of the Foreign Exchange Management Act, 1999.

Issac wondered why the ED is worried about the functioning of KIIFB when the Reserve Bank of India (RBI) has no objections to the transactions of KIIFB.

"These attempts by the ED are nothing but harassment. The ED and CAG are after the KIFFB even since the previous assembly elections. KIIFB has made a positive impact on the state," he said.

The KIIFB has approved 986 projects worth Rs 53,869 crore, while Rs 20,000 crore has been set aside for land acquisition for seven projects. In total, the KIIFB has set its sight to complete projects worth Rs 73,869 crore in national highways, waterways, electricity lines, school and hospital infra development and internet highway for K-FON.

Issac accused the BJP of attempting to formulate a new agenda to target the LDF government after failing in their efforts to destabilise the second LDF government.

"The ED had left no stone unturned two years back. The CAG, income tax department and ED together tried to set a trap, but nothing happened as they wished. The people of Kerala had rejected these accusations," he wrote on his social media handle.

The CPI(M) state secretariat has decided to seek a legal and political course of action against the actions of the ED.

'NOTHING ILLEGAL IN BONDS ISSUED'

The CAG has flagged a few allegations in its report of 2020 against the issue of masala bonds and foreign exchange violations. One argument is that the state government has no power to issue masala bonds.

"It is true that the state government has not, but KIIFB does not mean state government. KIIFB is a 'body corporate' as specified in the KIIF Act passed by the assembly," Issac said.

As per the regulations of the RBI, corporates or body corporates are eligible to issue masala bonds.

KIIFB applied through Axis bank per the procedure mandated by the RBI and issued masala bonds worth Rs 2150 crore in 2018.

"The right of the body corporates to issue masala bonds was withdrawn through an amendment to the statute. The act was amended by RBI on January 16, 2019. Accordingly, KIIFB has lost its right to issue masala bonds in the future. Since the KIIFB has issued the masala bonds before the amendment was made, it does not have a bearing on the already issued bonds," Issac said.

Moreover, like KIIFB, the National Highways Authority of India (NHAI) has received a nod from the RBI to issue masala bonds worth Rs 5,000 crore.

'FLAWS IN AUDIT REPORT'

The ED has reportedly issued the notice to Issac based on the CAG report, which has purportedly claimed that KIIFB has no income and hence the debt of KIIFB should be considered that of the state government.

"The ED has been targeting the KIIFB prior to the 2021 Assembly elections. After a gap, the Union government has raked it up. The Union government has claimed that the debt of KIIFB is that of the government and hence the borrowing capacity of the state government would be restricted", said R Ramkumar, economist and faculty of Tata Institute of Social Sciences (TISS).

He also refuted the allegations of the CAG about KIIFB having no income.

"There are two sources of income for the KIIFB. The state government is transferring the total petrol cess every year, along with the motor vehicle tax collected. During the first year, 10% of tax is transferred, with a 10% increase every year with a cap fixed at 50%. The KIIFB also gets interested from the deposits made from the above-said income," he added.

The KIIFB also has a corpus fund of Rs 2490 crore along with its physical assets, implying that the argument of the board having no income is utterly false.

"Therefore, the debt of the KIIFB does not have any bearing on the government of Kerala," Rama Kumar said.

'INTIMIDATIONS WON'T WORK'

The BJP-led Union government has been using the central agencies to suppress its political opponents, which has not worked out in the LDF-ruled Kerala.

Rama Kumar condemned the actions of the Union government of threatening the leaders of the CPI(M) and LDF.

"The attempts of the Union government in curtailing the development agenda of the LDF stands exposed by such intimidating and harassment tactics. Their attempts will be proven futile with the support of the people for the LDF."