The Comptroller and Auditor General’s (CAG) audit report for the fisc-al year ending 31 March, 2019, which was tabled in the state Assembly on Monday, is highly critical of the Kerala government over the off-budget borrowings made by the Kerala Infrastructure Investment Fund Board (KIIFB) for funding infra projects

The report, against which state finance minister T M Thomas Isaac had whipped up a storm in November last year, has said the off-budget borrowings of KIIFB are not in accordance with the Constitution.

“KIIFB has bypassed the limits set on government borrowings under Article 293 (1) of the Constitution and such borrowings do not have legislative approval,” CAG noted in the report

The borrowings are not taken into the disclosure statements in the budget documents or in the accounts, the CAG further says in the report.

As the state government chose to raise funds in the name of KIIFB and the debt is to be discharged from the government’s own revenue, such as cess on petroleum and a part of the motor vehicle tax, it has definitely created a liability on its revenue resources, the report said.

KIIFB had borrowed and raised funds amounting to Rs 3,106.57 crore from financial institutions till 2018-19 by issue of bonds. An amount of Rs 2,150 crore raised through Masala Bonds in foreign countries is part of the Rs 3,106.57 crore offbudget borrowings.

“Since KIIFB has no source of income, the borrowings by KIIFB for which the state stood as guarantor, may ultimately turn out to be a direct liability of the state government,” the CAG has pointed out.

The report said that the Constitution bestows the power to raise foreign loans only on the central government . It also criticizes the RBI for granting approval to the state to float ‘masala’ bonds.

“The approval given by the RBI to KIIFB to issue Masala bonds is also questionable as the nod has allowed the state to route its own borrowing through KIIFB. If the mode is followed by other states, the country’s external liabilities will rise substantially without the Centre knowing of creating such liabilities,” CAG said in the report.

This is the first time in the history of Assembly that the CAG report was tabled with an objection note of finance minister. Isaac said the report will have incalculable potential to hurt the interests of the state and cause to detriment to the development vision that the government had drawn for the people.

The report sparked row when Isaac attacked the CAG, alleging its conclusions were politically motivated. He had said the Kerala government will not allow the CAG to destroy KIIFB.

Following this,the Opposition moved a breach of privilege notice against the finance minister. Congress MLA VD Satheesan had filed the complaint against Isaac to the Assembly Speaker.The complainant alleged that the finance minister revealed the content in the CAG report to the media before tabling it in the Assembly.