Masala Bonds are rupee-denominated bonds issued abroad to raise capital without exposing Indian issuers to currency risk. After early momentum, the market declined due to rising global interest rates, rupee depreciation, stricter RBI norms, weak offshore INR liquidity, and better domestic borrowing options. In Kerala’s case, KIIFB’s 2019 masala bond has come under ED scrutiny for alleged FEMA and RBI guideline violations, particularly related to end-use restrictions. With politics intensifying ahead of elections, the issue reflects larger debates on off-budget borrowing, fiscal autonomy, and the evolving role of rupee internationalisation in shaping India’s external financing landscape.
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