Kerala Infrastructure Investment Fund Board (KIIFB), under fire from the CAG for the second consecutive time a year, has rejected the CAG charge that it was hoodwinking the Legislature by resorting to off-budget borrowings. "KIIFB's is an annuity model, it is not off-budget borrowing," said a note posted on KIIFB's official Facebook page.
Here is one of the damning observations of the Comptroller and Auditor General (CAG) report that was tabled in the Assembly on November 11: "If the state government increasingly resorts to these off-budget route to finance both its capital as well as its revenue funding, the liabilities of the state may increase substantially over a period of time leading to a debt trap, without the Legislature even knowing that such liabilities are being created."
In response, KIIFB argues that it is an institution with a "very solid" revenue source. Half of the state's annual motor vehicle tax revenue and the entire petrol cess it collects yearly would legally go to the KIIFB under the annuity scheme. Initially it was the 'growing annuity scheme' because the annual transfer of motor vehicle tax revenue happened in increments: 10% increase every year over five years and, from then on, 50% of the motor vehicle revenue will be passed on to the KIIFB annually till the debts are paid off.
"In the most simplest terms, KIIFB is a scientifically designed huge annuity scheme," the KIIFB note says.
The CAG report has observed that the KIIFB depended entirely on government funds. But KIIFB counters this, saying at least 25% of its projects are income-generating. For instance, it says the money spent on Kerala Optic Fibre network (K-FON) and industrial parks will come back to KIIFB with interest.
"If this income and the annual money transferred to KIIFB from the government are taken into account, KIIFB can never fall into a debt trap," the note said.
What is the guarantee that KIIFB, which has already sanctioned projects worth nearly Rs 65,000 crore, would never sink under the weight of its own liabilities? "KIIFB has developed an Asset-Liability Management Software that can accurately predict the future outgo and returns whenever a project is taken up,” the note says.
“The KIIFB director board will greenlight a project only after ensuring that at no point in time KIIFB's revenues will fall below its liabilities. KIIFB functions on the basis of a software that runs on the asset-liability matching model. This is why the charge that KIIFB would turn out to be a liability can never be vindicated," the note adds.
Debt trap is out of the question. "It is not uncontrolled borrowing that is taking place in KIIFB. Also, the government has not envisaged KIIFB as a shortcut to source funds bypassing the budget either. This is a body corporate formed to mobilise funds necessary for the development of the state's basic infrastructure," it says.
The KIIFB note also suggests that the CAG's observations are discriminatory. "During the same period, the Centre too had mobilised funds using the annuity model, and employed them. The Centre has sanctioned projects worth Rs 76,435.45 crore under the annuity scheme model. What's more, the Centre has run up an annuity debt of Rs 41,292.67 crore," the note says.
In contrast, KIIFB is debt-free. Till the 2019-20 fiscal, the note says that KIIFB had taken a loan of Rs 5036.61 crore and had paid Rs 353.21 crore as interest during the period. However, in the same period, the state government has transferred Rs 5572.85 crore of its motor vehicle taxes and petrol cess to KIIFB. "Meaning, the funds from the government were more than the liabilities of KIIFB during the period," it said.