For the third consecutive fiscal, the Comptroller and Auditor General has warned Kerala of the dangers of fattening off-budget borrowings and wants the borrowings of entities like KIIFB to be included in the annual budget documents and made part of revenue and fiscal deficits.
Finance minister K N Balagopal said the CAG observations were already rejected by the Public Accounts Committee of the Assembly.
He also said that the CAG was ignoring the social and economic relevance of the entities that make these borrowings termed as off-budget by the CAG.
The latest adverse remark of the CAG has come at a time when the Centre was threatening to include Kerala's off-budget borrowings in its total annual open market borrowings, a move that could drastically reduce the state's borrowing capacity.
The Centre is so intensely cracking down on off-budget borrowings that former finance minister T M Thomas Isaac had been summoned by the Enforcement Directorate to question him on the masala bonds KIIFB had sourced from London during his tenure.
The latest CAG report, tabled in the Assembly on Wednesday, observes that Kerala had resorted to off-budget borrowings of Rs 9273.24 crore during the 2020-21 fiscal.
"Off-budget borrowings by the State Government have the effect of bypassing the Net Borrowing Ceiling (NBC) of the State by routing loans outside State budget through government-owned or controlled companies/statutory bodies despite being responsible for repayment of such loans," the CAG Report on State Finances said. "Such borrowings naturally have impact on the Revenue Deficit and Fiscal Deficit and thus have the effect of surpassing the targets set for fiscal indicators under the Kerala Fiscal Responsibility Act, 2003.
Creating such liabilities, without disclosing them in the budget, raises questions both of transparency, and of inter-generational equity," the report said.
And, like the report said last year, this year's report too has recommended that the inclusion of the details of the off-budget borrowings in the annual budget documents.
Kerala Infrastructure Investment Fund Board (KIIFB) and Kerala Social Security Pension Limited (KSSPL) are the two major instruments used by the LDF Government to make off-budget borrowings.
Finance minister K N Balagopal, in a brief note appended along with the CAG report, reiterated that the borrowings of KIIFB were not direct liabilities but only contingent liabilities "particularly since KIIFB also funds remunerative projects and generates its own revenues as well".
Balagopal also refuted the CAG claim that the borrowings of the KSSPL was an off-budget debt liability of the government. "In actual fact, the borrowings of KSSPL are only for the purpose of managing the liquidity of the State and for ensuring that welfare pensions to over 60 lakh beneficiaries in the state are not delayed due to any cash management issues.
Most of these amounts are repaid during the course of the year," the finance minister said.
Further, the minister said that the CAG report had lost sight of the fact that it was because of Kerala's wide social security net through the KSSPL, that the state has been able to keep poverty down to below one per cent, the lowest in the country.
To the CAG's charge that it was bypassing the Budget, KIIFB had earlier argued 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.
The CAG report last fiscal had observed that the KIIFB depended entirely on government funds. But KIIFB had countered this saying at least 25 per cent 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 KIIFB had argued.
