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Kerala finance minister Thomas Isaac.
Kerala finance minister Thomas Isaac.

How Kerala govt is planning to tackle its revenue deficit

The new govt has revamped structure of Kerala Infrastructure Investment Fund Board to attract private investments to the state

Bengaluru: Historically suspicious of foreign multinational companies, Kerala’s Left Front has big plans to work with the market through a project called the Kerala Infrastructure Investment Fund Board (KIIFB), which aims to mobilize Rs50,000 crore from the market in the next five years.

In what seems to be a strategic shift to attract private investments, the new government has revamped the KIIFB structure.

It is now a “body corporate" and as per Thomas Isaac, the development economist who is now state finance minister, the experiment could prove that infrastructure development on a certain scale could be done without involving user charges for the large part.

It will boost investments in two ways, said K.M. Abraham, the civil servant credited with nailing the Sahara scam, who has been appointed as chief economic officer of KIIFB.

First, it will raise money from the market in the form of bonds and guarantees and use it to invest in projects that will develop the state’s social and physical infrastructure, which in turn will invite private investments, he said. Second, it will help set up an asset management company which will formulate structures to explore public-private partnership projects and new resource mobilization mechanisms like an alternative investment fund, infrastructure debt fund and infrastructure investment trust.

Kerala has roped in some of the country’s top economists, bankers and administrators to sit on the KIIFB board. They include former executive directors of Securities and Exchange Board of India J.N. Gupta and Radhakrishnan Nair, IIM-Kolkata professor Susheel Khanna, former regional director of Reserve Bank of India (RBI) Salim Gangadharan, Finance Commission member and Emeritus professor at the National Institute of Public Finance and Policy Sudipto Mandal and economist and Jawaharlal Nehru University faculty C.P. Chandrashekar.

In its first board meeting last week, KIIFB approved projects worth Rs4,000 crore and appointed former comptroller and auditor general Vinod Rai as chairman of KIIFB’s Fund Trustee Advisory Commission—a three-member body of independent watchdogs to protect the interests of investors. The other members are ex-RBI deputy governor Usha Thorat and ex-Nabard chairman Prakash Bakshi.

Finance minister Isaac said, “We also know the market will be looking into whether we will be able to repay, whether there is a revenue model to sustain this. One, it’s not a never-ending space. We will have to cap it (the bonds) at some level, where it will be acceptable to the market. Second, we have got a revenue model for each specific type of bond. For example, we will spend some Rs10,000 crore on housing; a portion can be deducted every year from the local government where it is implemented for the next 25 years or so, which will pay off the debts."

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