Why in the news?
The Enforcement Directorate’s (ED) notice to Kerala Chief Minister Pinarayi Vijayan and senior officials in the KIIFB masala bond case has revived debates on FEMA compliance, off-budget borrowings, and Centre–State fiscal relations. As local body polls approach, the issue has also acquired political significance.
What is KIIFB?
Kerala Infrastructure Investment Fund Board (KIIFB)
- Statutory body established under KIIF Act, 1999
- Revived in 2016 as Kerala’s key infrastructure financing arm
- Raises funds outside the State budget, mainly through long-term borrowing
- Functions as an off-budget financing mechanism
What is Off-Budget Borrowing?
- Debt raised by state entities (SPVs, boards) instead of the government directly
- Not reflected in the official fiscal deficit
- CAG has criticised such borrowings for reducing transparency
What Are Masala Bonds?Masala Bonds =
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KIIFB Masala Bond:
- Issued in 2019 on the London Stock Exchange
- Total amount: ₹2,150 crore
- First sub-national entity in India to issue such a bond
Why Did ED Issue Notices?ED’s probe relates to alleged violations under:FEMA, 1999 – Foreign Exchange Management Act ED claims: Part of the masala bond funds was used for land purchase. RBI prohibits land purchase using ECB/masala bond proceeds Kerala’s defence:
Enforcement Directorate (ED)
CAG (Comptroller and Auditor General of India)
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| With reference to ‘IFC Masala Bonds’, sometimes seen in the news, which of the statements given below is/are correct? (2016)
1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank. 2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector. Select the correct answer using the code given below. (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 |
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