One of the state's biggest worries is how to repay the loans Kerala Infrastructure Investment Fund Board (KIIFB) has been taking like there is no tomorrow from domestic and international sources. Will the incumbent and future governments have any choice but to impose tolls and surcharges like in highly developed countries to recoup the huge money spent on creating public facilities like roads, bridges, schools and hospitals? Are we about to witness a radical change in Kerala's highly subsidised social spending strategy?
Finance minister Thomas Isaac has already ruled out any movement away from socialist ideals. According to him, the petrol cess and half the annual revenue from motor vehicle taxes, which the Kerala Assembly has unanimously voted to hand over to the KIIFB every year, will be more than enough to pay off KIIFB's humongous debt. This is an assurance the minister had given in the Assembly.
In a sense, it can now be said that the Keralite's love for cars and travel alone can pull the state out of a debt trap.
It is now reliably learnt that the KIIFB has drawn up a timetable of repayment for the KIIFB using the most modern ICT (Information and Communications Technology) tools. According to this, an investment of Rs 50,000 crore in five years will necessitate repayment of Rs 94,119 crore.
The timetable, which is prepared for a worst-case scenario, shows that the whole of petrol cess and half the motor vehicle tax the KIIFB would receive yearly will be good enough to repay the total outgo of nearly Rs 95,000 crore.
Here is Isaac’s estimate of KIIF-B expenditure (based on a worst-case interest rate of 9.5 per cent) till 2020-21, the last fiscal of the Pinarayi government.
- 2017-18: borrowing – Rs 5000 crore; annual interest – Rs 1345 crore; total outgo – Rs 9412 crore.
- 2018-19: borrowing - Rs 10,000 crore; the annual interest - Rs 2689 crore; total outgo - Rs 18,824 crore.
- 2019-20: borrowing - Rs 20,000 crore; annual interest - Rs 5378 crore; total outgo - Rs 37,647 crore.
- 2020-21: borrowing – Rs 15,000 crore; annual interest – Rs 4034 crore; total outgo – Rs 28,236 crore.
In short, an investment of Rs 50,000 crore in five years will necessitate repayment of Rs 94,119 crore.
The opposition has already expressed shock at the 9.72 per cent interest rate at which the KIIFB had issued masala bonds. “It is not as if all of KIIFB's loans are taken at 9.72 per cent. It will vary according to the type of loan. The average will be considerably low,” finance minister Thomas Isaac said. “A certain portion of the Pravasi Chitty funds that will be available to the KIIFB will be charged only at 3.5 per cent. And term loans from banks will be available for 8.5 per cent,” Isaac said.
In this projection, repayment is scheduled to end in 2031-32. Now, here is the revenue side. At the moment, KIIF-B has Rs 1643 crore (from motor vehicle tax and petrol cess.) After taking into account the petrol cess and the share of motor vehicle cess that will flow to KIIFB and the interest that will accrue, the KIIFB will have Rs 3974 crore in its kitty by 2021-22. By 2027-28, it will be Rs 8348 crore. And finally, in the last repayment year of 2031-32, the KIIFB will have Rs 15,116 crore.
All the yearly amount in KIIFB's coffers are added (from 2016-17, when the government had begun diverting petrol cess and motor vehicle tax to the KIIFB, to the final repayment year of 2031-32), KIIFB will be in possession of Rs 94,980 crore, funds more than enough to take care of its expenditure (Rs 94,119 crore).
If wishes were horses
Nonetheless, two assumptions, rather fond wishes, have been made while drawing up the 'worst-case scenario' repayment schedule. One, motor vehicle taxes will grow at a rate of 15 per cent annually. Two, the repayment needs to start only after five years, which is after the 2021-22 fiscal.
Both these assumptions have gone awry. Call it the beginner's luck. In 2017-18, the growth in motor vehicle tax in the state was 17.8 per cent, above the projected growth. But in 2018-19, it fell to 11.9 per cent. Given the huge slump recorded in the sales of automobiles this fiscal, the growth is now expected to fall even further. Keralites, it seems, are less fond of cars these days.
The other big hope was that the state needed to start repaying only after a five-year holiday after the Pinarayi Vijayan government's term ended. The 'masala bonds' have dashed this wish, too. The repayment for the Rs 2150 crore the KIIFB had mopped up through the masala bond route has to be completed in the next five years. The payback, therefore, has begun the moment the loan was secured.
“The repayment schedule we had drawn up will be subjected to timely revisions. This temporary fall in the growth of motor vehicle tax or the immediate repayment for masala bonds will not alter the projected repayment pattern in any big way,” a top KIIFB source said.