Thiruvananthapuram: Finance minister K N Balagopal said on Thursday that the Kerala government would not abandon its flagship capital investment project, Kerala Infrastructure Investment Fund Board (KIIFB).
"Any shortfall in the revenue pool that keeps the KIIFB nourished will be made up by the government," the finance minister said while talking to reporters in Thiruvananthapuram on Thursday.
The minister's statement came in the backdrop of falling motor vehicle taxes in Kerala. As per the Kerala Infrastructure Investment Fund Board (Amendment) Act, 2016, 50 per cent of the motor vehicles tax and the entire petrol cess collection would be transferred to the KIIFB annually. This will be Kerala government's assured annual largesse to the KIIFB.
However, the COVID-induced economic downturn has seriously affected motor vehicle sales. Consequently, tax from its sales have plummeted. In fact, even before COVID, tax revenue from motor vehicle sales was either dipping or stagnating.
During the last four fiscals, the growth in motor vehicle tax was nothing to crow about: Rs 3,662.85 crore (2017-18); Rs 3,708.61 crore (2018-19); Rs 3,721.14 crore (2019-20); and during the first COVID year (2020-21), it was Rs 3367.11 crore.
Sources told Onmanorama that this figure would go below 2700 crore when the final, CAG vetted, figures were out. During 2021-22, too, the revenue from motor vehicle sales is not expected to cross Rs 3000 crore.
This would mean that for at least two years, the government transfer to KIIFB (half of motor vehicle tax and petrol cess) would hover between Rs 2000 and Rs 2500 crore, at least Rs 1000 crore less than what was originally estimated by the former finance minister Dr T M Thomas Isaac.
The optimist that he is, Isaac had estimated a 15 per cent annual growth in motor vehicle tax when he launched KIIFB. Fact is, since 2017-18, the highest growth achieved was 1.2 per cent, in 2018-19. Post-COVID, motor vehicle tax collection had slipped to a 10 per cent negative growth.
Balagopal has now said that the government would compensate for the fall in revenue. Problem is, the government cannot transfer money to KIIFB like it would to other departments or autonomous bodies under it. KIIFB, theoretically, is a separate entity, a body corporate.
"If the government wants to transfer funds other than what falls under motor vehicle tax and petrol cess, it has to amend the KIIFB (Amendment) Act, 2016," a top source in the Finance Department said.
The repayment path that was originally envisaged will also have to be relaid. The repayment schedule drawn up by KIIFB in 2017 said an investment of Rs 50,000 crore in five years will necessitate repayment of Rs 94,119 crore.
It was also said that government transfer alone was enough to pay back KIIFB's debts. Meaning, even if none of its projects generated revenue, KIIFB could still pay up its debts without sweat.
Now, the total KIIFB spending has shot up to Rs 64,344.64 crore, nearly Rs 15,000 crore more than what was actually intended. Repayment, therefore, will cross Rs one lakh crore.
The moot question is this: Given the fall in motor vehicle tax collections and the gradual shift to electric vehicles, will the government's assured funds be enough to keep the KIIFB afloat?
Also to be considered is the interest burden. Isaac had earlier said the revenue model he had used to create the KIIFB roadmap was highly conservative as it had assumed a prohibitive 9.5 per cent interest rate.
In other words, he meant that Kerala was anyway not going to source funds at such a huge interest rate. He was trying to assure Kerala that even with a 9 percent-plus interest rate, KIIFB was still safe. As it turned out, Kerala secured masala bonds from the London Stock Exchange for Rs 9.72 per cent.
