Economy
A heated row erupted in the Kerala assembly over the listing of Kerala government's Masala bonds in the London Stock exchange.

“Kerala is currently in the middle of a financial crisis. There is a lot of stress on the market as there is no activity happening. Our intention is to rescue Kerala from an impending financial crisis and that is not neo-liberal in nature, that is Keynesian,” argued Kerala's Finance Minister Thomas Isaac on the floor of the assembly on Tuesday. 

Isaac went on to state that the recently floated masala bonds will help the government raise money which will be used to set up government Special Purpose Vehicles for developing infrastructure. This is unlike the PPP model used in the neo-liberal approach, Isaac argued.

The recent sale of Kerala masala bonds in the London Stock Exchange triggered a heated debate with opposition leaders questioning the lack of clarity and mystery surrounding the floating of the bonds.

Isaac added that as per the Fiscal Responsibility and Budget Management Act 2003, the state was only allowed to borrow 3 percent of its GDP which led to the government exploring budget mechanisms to raise money via the Kerala Infrastructure Investment Fund Board (KIIFB). 

Floating of domestic bonds did not work out as interest rates ranged from 10.20 percent to 10.25 percent which was higher than the 9.723 percent for the Masala bond, the FM said.

While Isaac acknowledged that the interest rates were high,  a portion of the Motor Vehicles tax and petrol cess will be used for repayment of interests he said. 

“The Masala bonds can help raise money worth Rs 50,000 crore in a span of 3 years for infrastructure,” Isaac added. 

The Finance Minister was responding to an adjournment motion by Congress leader K Sabarinathan on Tuesday. 

One of the main charges of the opposition was how Canadian government owner firm CDPQ of which SNC Lavlin owns 20 percent of the stake bought the lions share of the masala bonds. 

The SNC Lavlin scandal related to a hydro-electric infrastructure project had rocked Kerala back in 1995 with present Kerala CM Pinarayi and Industries Minister EP Jayarajan being named in the scam. 

In response to the allegations KIIFB had earlier clarified that CDPQ which bought the masala bonds is a government company in Canada with several companies investing in it, including SNC Lavlin. However, none of the portfolio investors have ownership or controlling rights in the firm. 

Masala bonds are rupee dominated borrowings issued in foreign markets by Indian entities. The bonds are used to fund infrastructure projects in India, fuel internal growth. The bonds are also directly pegged to the Indian currently making investors directly bear the risk of currency exchanges. 

The KIIFB had last month celebrated its listing of Masala bonds in the London Stock Exchange which was attended by Kerala CM Pinarayi Vijayan. With this, the KIIFB is also the first sub sovereign board in India to tap the offshore Rupee international bond market and accessing capital from international investors for infrastructure building in the state.