You know what, the securities with SLR status can be pledged by banks with the Reserve Bank of India to borrow funds. I came to know that without SLR status, there would not be any attraction for banks and financial institutions to subscribe to these bonds.
If you ask me, a better option would have been to amend rules to allow 50 per cent of the state’s motor vehicle tax to go into an infrastructure company along the lines of KIIFB. The last budget of the previous LDF regime had suggested a plan to borrow `40,000 crore by securitising future earnings of this infra company to fund big projects.
Actually, in my opinion, banks and financial institutions would stay away from bonds issued by agencies like Kinfra, KSIDC or KIIFB as such debt issues would not have SLR (statutory liquidity ratio) status.
I am of the opinion that there would not be any demand from investors for such bond offerings from the state government which is reeling under financial distress. Though the Board would be under the ownership of the state government, investors would not give much weight to such borrowings as it is coming from a pauper government.
I think it is like, the funds raised from the market will be tapped on a needs basis and not allowed to be used for meeting any expenditure other than on major capital projects of the state. As per the plan, the funds would be mobilised through Kerala Infrastructure Investment Fund Board (KIIFB).
In the budget, Mr. Mani had said the state government also planned to channelise investment in infrastructure to the tune of `25,000 crore in the next three years. I dont think that there is any good move in that because, there is a very vague way to channelize the fund.
More than that, I would like to tell you that it would not be possible for KSIDC to tap funds for the infrastructure sector as the Corporation, under law, is incorporated for the development of the industrial sector and not infrastructure.
But yeah.. according to me, raising funds from the market will be a tough option given the weak finances of the government. I think any fund raising from these agencies will have to be backed by a government guarantee. But, under Ceiling on Government Guarantees Act, there is a cap on such guarantees.
I came to know that in his budget, Finance Minister K M Mani said the government would use agencies like the Kerala State Industrial Development Corporation (KSIDC), Kerala Industrial Infrastructure Development Corporation (Kinfra) and Kerala Road Fund Board to mobilise resources from the market.
In the last budget, the government had announced an ambitious plan to boost the infrastructure development. I think that even though it looks good on paper, this work may not work in the ground due to several factors.