Red Bonds

The Masala Bond gamble that helped fuel Kerala’s infrastructure boom now lays bare the Left’s uneasy marriage with the markets.

Kerala

For a party that built its moral brand on austerity, probity and suspicion of global finance, the Communist Party of India (Marxist) has developed a striking fondness for financial alchemy. Kerala’s celebrated experiment with rupee-denominated ‘Masala Bonds’ was meant to signal modern, market-savvy governance under Chief Minister Pinarayi Vijayan. Instead, it has now become a case study in doctrinal hypocrisy and potential regulatory defiance after the Enforcement Directorate issued show-cause notices under the Foreign Exchange Management Act (FEMA) to Vijayan, former finance minister T. M. Thomas Isaac and former bureaucrat K. M. Abraham.

At the heart of the matter lies Rs. 466.91 crore - part of the Rs. 2,150-crore raised through bonds listed in London and Singapore in 2019 allegedly used to buy land, an end-use the regulator says was explicitly prohibited under the RBI’s master directions of June 2018. The Left, which traditionally treats foreign finance as a moral pollutant, now finds itself accused of misusing precisely the kind of capital it once denounced as imperial excess.

The CPI(M)’s first instinct, predictably, is denial wrapped in martyrdom. The notices are “politically motivated,” say its party leaders. The timing, just ahead of local body polls, adds a layer of theatrical outrage. The ED, long accused of being Delhi’s political bludgeon, makes an unconvincing villain in Kerala’s familiar script of federal victimhood. But to hide behind the Centre is to avoid an inconvenient truth as this trail did not begin with the ED but with the Comptroller and Auditor General (CAG).

The CAG’s 2019 audit of Kerala’s finances raised red flags on KIIFB’s borrowing structure and constitutional propriety. That report triggered the original FEMA probe in 2021. When the RBI told the Kerala High Court that the ED indeed had the power to investigate end-use of funds, the fig leaf of institutional immunity fell away.

The Left’s defence that land was ‘acquired’ rather than ‘purchased’ is a distinction without an economic difference. One changes accounting labels; the other changes reality. External commercial borrowing rules do not care much for semantic gymnastics. What matters is whether foreign capital, raised at a hefty 9.72 percent interest rate, was diverted into real estate in contravention of explicit norms.

This exposes the deeper contradiction of Vijayan’s rule. Kerala’s model today rests not on old-style redistribution, but on leveraged growth, off-balance-sheet borrowings and an infrastructure splurge disguised through quasi-sovereign vehicles like KIIFB. In effect, the CPI(M), once suspicious of debt markets, has recreated the very financial architecture it long condemned in ‘neoliberal’ states. It borrows abroad at premium rates, bypasses conventional budgetary scrutiny, and then pleads innocence when auditors and regulators come knocking.

The political defence is just as elastic. When the ED targets opposition leaders elsewhere, the CPI(M) thunders against authoritarianism. When it targets CPI(M) leaders, the agency becomes a BJP conspirator acting in cahoots with Kerala’s enemies.

That said, a show-cause notice is not a verdict and the ED itself is no paragon of institutional purity. But politics is not a court of law; it is a court of consistency. And here the CPI(M) stands exposed. A party that once equated foreign capital with exploitation now stakes its prestige on overseas bond markets. A government that preaches clean governance now faces detailed charges of prohibited end-use. A leadership that thrives on the rhetoric of siege now confronts questions born not in Delhi but in audit reports and balance sheets.

Kerala’s voters are sophisticated enough to grasp the distinction between due process and deflection. They can also sense when outrage becomes rehearsal rather than resistance. If the Left truly believes the ED’s case is hollow, it should welcome a transparent adjudication instead of drowning it in election-season conspiracy.

For a party that once promised to change the system, the CPI (M) now seems trapped in explaining why it looks so uncomfortably like the system it once despised.