CAG report flays external borrowing by Kerala's KIIFB; Govt note in assembly seeks to fault auditor

A CAG report on Keralafinances, tabled in the state assembly on Monday, severelycriticised the state-owned KIIFB's external borrowings through''Masala Bonds'', saying these were not in accordance with theConstitutional provisions and lacked legislative approval.

It was presented along with an observation note by theLDF government claiming that procedures had been flouted inpreparation and submission of the report by the Comptrollerand Auditor General.

The opposition Congress-led UDF objected to the note byFinance Minister T M Thomas Isaac, terming it unprecedented.

Union Minister V Muraleedharan, in a tweet, said the CAGreport was ''a tight slap on the corrupt regime'' of ChiefMinister Pinarayi Vijayan.

The report also said the approval given by RBI to theKerala Infrastructure Investment Fund Board (KIIFB) to issuethe Masala Bonds is questionable because its permissionallowed the government to route its own foreign borrowingsthrough the state-owned institution.

''If this model were to be followed by other states aswell, then the external liabilities of the country wouldincrease substantially, without the central government evenknowing that such liabilities are being created,'' it said.

Masala bonds are specialised debt instruments issuedoutside India but denominated in Indian Rupees, rather thanthe local currency.

The report was tabled in the assembly months after Isaachad courted a controversy by releasing some portions of it tothe media while alleging that a political conspiracy had beenhatched to 'choke' Kerala's development projects.

The CAG said the off-budget borrowings through KIIFB,which mobilises funds for infrastructure development fromoutside the state revenue, were not in accordance with Article293(1) of the Constitution related to borrowings by states andbypassed the set limits.

''These borrowings are not taken into the disclosurestatements in the budget documents or in the accounts andhence such borrowings do not have legislative approval,'' theCAG said in the State Finances Audit Report for the yearending March 2019.

KIIFB had borrowed or raised funds amounting to Rs 3,106crore from financial institutions till 2018-19 by issue of thebonds which were to be repaid from the petroleum cess and partof motor vehicle tax set apart by the state government.

''This included an amount of Rs 2,150 crore raised throughMasala Bonds in foreign countries. Since KIIFB has no sourceof income, the borrowings by KIIFB for which the stategovernment stood as guarantor, may ultimately turn out to be adirect liability of the state government,'' the report said.

The observation note tabled by Isaac alleged ''there weregrave violations of procedure'' on the part of the CAG ''in themanner of preparation and submission'' of the report.

Opposition members raised objections to the circulationof the note by the Finance Minister.

V D Satheeshan of Congress said there was no relevance tothe statement. While tabling the CAG report, placing theminister's observation note was unprecedented, he said.

Speaker P Sreeramakrishnan said the Finance Minister'sobservation was submitted with the approval of the Governorbut the same can be examined by the Public Accounts Committee.

Isaac said the CAG's comments have ''incalculablepotential to hurt'' the state's interestsgravely and ''causedetriment to the development vision'' that the Left DemocraticFront government had drawn up for the people of the state.

He maintained he did not intend to dwell on the merits ofthe CAG report, but the mode and manner in which it had beenprepared was ''ultra vires of the regulations'' of the bodyitself.

''...before including any comments or observations in anaudit report, the state government has to be given anopportunity to offer its comments or explanation... the draftaudit report can be modified based on the reply from thegovernment or the reply can be rejected,'' he said.

Isaac registered his protest against certain observationsin the report, saying they were not communicated to thegovernment and that the CAG made changes in the draft and hadnot followed its own procedure in submitting the report.

Muraleedharan said: ''#CAG report tabled in KeralaAssembly, on the KIIFB stated that @CMOKerala used it againstthe Constitution of the country by flouting norms. Govt run by@VijayanPinarayi has deliberately entered into the domain ofUnion Govt. This was precisely the reason why his cronies havebeen opposing #CAG audit of #KIIFB,'' he tweeted.

He also said it was a ''shame that the Vijayan governmentbroke all rules to serve its interests and provide a cover forthose aiming to destabilise the country by way of ''shadydealings through apparatuses like KIIFB.'' After Isaac kicked up the controversy in November, theopposition had moved a complaint against him before thePrivileges and Ethics Committee for making public the detailsof the CAG report before it was tabled in the assembly.

The Minister had on December 29 last appeared appearedbefore the committee and later told media persons that he hadnot committed any breach of privilege of the assembly.

He had also earlier said the state government would notallow the CAG to destroy the KIIFB.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)