A wildly inventive and wealthy weapons manufacturer named Anthony Edward Stark once suffered a near-fatal heart injury. Just inches away from death, the inventive genius, better known as Tony Stark, made for himself a suit that would not only keep his heart going but would allow him to take on all the evil in the world.
Iron Man, he was called.
Now, imagine the Iron Man being told that he would die quicker if he continued in his suit than out of it.
This is exactly what is happening to Kerala finance minister K N Balagopal.
He has now been told to get out of the fail-proof exoskeleton - KIIFB - his predecessor T M Thomas Isaac has created. The Centre has told him that the massive investment he was planning through KIIFB, over Rs 70,000 crore, would bleed the state dry.
On Friday, when Balagopal stands up to present his third Budget, he will be without his version of the Iron Man suit.
The Union Ministry of Finance has already decided to reduce the Rs 14,312 crore KIIFB, and another special purpose vehicle Kerala Social Security Pensions Limited (KSSPL), had taken as loans in 2021-22 from Kerala's open market borrowing limit; this will be done in four yearly installments. KIIFB's borrowings for subsequent years, too, will be subtracted from Kerala's future borrowings.
Consequently, the lure of KIIFB as an off-budget borrowing mechanism, which could circumvent rigorous fiscal responsibility norms, has ceased.
Isaac's Iron Man suit has lost its magic.
Magic pill called KIIFB
Ever since Isaac redesigned and re-introduced Kerala Infrastructure Investment Fund Board in his 2016-17 Budget, he has been able to announce some of the most breathtaking infrastructure projects the state has ever heard of: Kerala Fibre Optic Network (K-FON), Transgrid 2.0, coastal and hill highways, hi-tech schools, Petrochemical and Pharma park.
KIIFB projects sounded futuristic and highly promising. Some of these projects are in an advanced stage of completion.
There was never the fear of fiscal deficit soaring, as KIIFB borrowings were outside the Budget. "The KIIFB had given Isaac a certain omnipotence. When the Centre said it could not go ahead with National Highway development in Kerala as land prices were exorbitant, Isaac promptly promised to foot Rs 6000 crore or one-fourth of the land acquisition cost through KIIFB. No other state in India had so surprised the Centre," a top bureaucrat who had worked closely with Isaac told Onmanorama.
Till now, both Isaac and Balagopal could announce all kinds of development projects in the name of KIIFB. In Balagopal's last Budget, over 30 major projects were funded by KIIFB. "The finance minister can allocate fanciful figures as these would not reflect in the budget figures. Even after huge spending, the deficit will still seem modest," the retired bureaucrat said.
Asset-liability check
Originally, KIIFB intended to invest Rs 50,000 crore in five years.
Its financial model of transferring half the annual revenue from motor vehicle tax and the entire annual petrol cess, was designed to pay back Rs 50,000 crore. In 2017, it was said that the share of motor vehicle tax and petrol cess, and the interest that accrues from these, was enough to pay back KIIFB's entire liabilities by 2032.
However, by the seventh year, KIIFB has sanctioned over 962 projects worth Rs 70,762 crore. Even then, a top KIIFB official told Onmanorama that there was nothing to worry.
"This increase was made possible by an asset-liability software that sanctions a new project only if it did not upset the repayment programme," the official said.
"We only have a fixed income, which is the combined share of half the motor vehicle tax and the entire petrol cess. So if the government wants new projects,the software checks if these could generate revenue by itself. Therefore, when the KIIFB outlay increases, it only means that revenue-generating projects within KIIFB will increase," a top KIIFB official said.
Earlier, when KIIFB had sanctioned projects worth only Rs 50,000, the revenue-generating projects in the mix were below 15 per cent. Now, it is 28 per cent.
KIIFB's tragedy
Trouble is, the Centre has now questioned the very KIIFB model. It was the assured annual transfer of a portion of the state's budget revenues that has prompted not just the Centre, but the CAG too, to term KIIFB's liabilities as direct liabilities.
If the Centre refuses to accept Kerala's argument, Kerala will have to find non-budgetary sources to nourish KIIFB, an impossibility according to experts.
But if Kerala decides to retain KIIFB as it is, the implementation of projects will have to be staggered, spaced out in time, so that Kerala's borrowing limit is not drastically curtailed. "But if projects are realised only 10 or 15 years from now, why do we need KIIFB? We began KIIFB so that future investments happen now," the KIIFB official said.
