Heres why the ED is going after Kerala Infrastructure Investment Fund Board
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Here's why the ED is going after Kerala Infrastructure Investment Fund Board

The Enforcement Directorate has launched an investigation against the Kerala Infrastructure Investment Fund Board for allegedly violating the Foreign Exchange Management Act


The Enforcement Directorate (ED) has launched an investigation against the Kerala Infrastructure Investment Fund Board (KIIFB) for allegedly violating the Foreign Exchange Management Act (FEMA).

The state Finance Minister, Dr Thomas Issac, has challenged the ED to prove its case. “This is nothing but political vendetta. The ED should tell its political masters in Delhi that it is not the Congress, but the Left that is here in power,” Dr Issac said at a press conference in Thiruvananthapuram.

What Is the ED’s Case?

“We are looking into the functioning of KIIFB, whether there is a violation of FEMA,” Radhakrishna Pillai, the director of ED in Kerala, told The Federal. He added that foreign borrowings through ‘masala’ bonds – rupee-denominated bonds issued outside India by Indian entities – is a violation of FEMA. KM Abraham ,the CEO of KIIFB, has been served notice to appear for interrogation on March 5. Summons have also been issued to senior officials of Axis Bank, the banking partner of KIIFB. Pillai told The Federal that the minister would also be summoned if required.

The Finance Minister’s Explanation

“The KIIFB is a statutory body. We have the approval of the Reserve Bank of India for borrowings and issuing masala bonds. According to FEMA and RBI regulations, any body corporate can go for foreign borrowings with the approval of the RBI. KIIFB is a body corporate,” said Dr Issac.

Also read: Kerala govt is in the dock over ‘Masala bonds’. What are they anyway?

According to Section 6(3) (d) of FEMA, the RBI is entrusted with the authority to regulate foreign borrowings. The section reads: “The Reserve Bank may by regulations prohibit, restrict or regulate any borrowing or lending in foreign exchange in whatever form or by whatever name called.” Based on these powers, the RBI has issued a master circular (No 5/2015-16), which refers to masala bonds and eligible borrowers. According to the circular, any body corporate or corporate is eligible for borrowing. According to the Kerala Infrastructure Investment Fund Act 1999, KIIFB is a body corporate and by definition eligible for borrowing under the conditions stipulated by the RBI.

Political Implications

It is clear that the KIIFB is going to be a central theme in the election. The state government says the BJP is using the agencies of central government to cast shadow over the activities of KIIFB. The ruling Left Democratic Front (LDF) is also using this as an opportunity to promote and showcase the development activities being done and accomplished under KIIFB.

Also read: In Kerala, ED-govt spat out in open with minister Isaac’s bitter jibe

The BJP, on the other hand, is trying to raise the campaign that KIIFB is only a cover up for executing corruption and it sites the ED investigation to substantiate its point. However, it seems that the opposition United Democratic Front has realised that it would not be a good strategy to go with the ED narrative. Ramesh Chennithala, the leader of the opposition, makes it clear. He told the media that the ED’s intention is dubious. He said the timing of this investigation was suspicious.

What Is KIIFB Doing in Kerala?

The KIIFB was established in 1999 under a statute unanimously passed by the assembly. It was envisaged as a body corporate or a special purpose vehicle to mobilise funds for infrastructure development of the state. When the LDF government came to power, an amendment was brought in 2016 to expand the powers and scope of KIIFB in order to mobilise funds for large-scale development projects. According to the figures provided by the office of the finance minister, 889 projects worth 43,250 crore have been approved as on March 3, 2021. Four-hundred thirty-five projects (for 18,994 crore) are currently in progress. The majority of the projects are being done by the Public Works Department (PWD) like roads, bridges and highways. Three-hundred eighty-nine projects are under the PWD and 188 under the department of education (renovation and construction new school buildings and other infrastructure facilities). The KIIFB has also undertaken the construction and renovation of hospitals, drinking water projects, establishment of industrial parks and IT centres, sports and culture centres, etc.

Is the ED Politically Motivated?

When The Federal contacted ED officials, they  said the government has to prove whether there is approval from the RBI. The ED need only check the documents, but it keeps sending summons to KIIFB officials and interrogating them. One officer who did not want to be named told The Federal that the ED is harassing them. ED officials told The Federal that their intention is to verify whether everything is being done as per rules. On the other side, the documents accessed by us give a strong hint that the ED has been targeting KIIFB for a while. It is evident that the ED was trying to collect some evidence against the operations of KIIFB during the investigation of the gold smuggling case. The case documents accessed by The Federal make this clear. During the interrogation of Venugopal, the chartered accountant of Sivsankaran, the CM’s former principal secretary, the ED asked several questions about KIIFB. In this interrogation, which took place on August 9, 2020, Venugopal is asked whether he was handling the accounts of KIIFB and whether any of the bureaucrats have ‘investment’ in KIIFB. However, ED officials denied any such political intention when we contacted.

The chief minister, meanwhile, has filed a complaint to the election commission against the ED alleging violation of the code of conduct.

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