THIRUVANANTHAPURAM: Portraying the Kerala Infrastructure Investment Fund Board (KIIFB) as driven by political priorities rather than strategic ones, the ‘Kerala’s Fiscal Health’ report tabled in the assembly on Thursday called for new legislation to clip the financial body’s independent borrowing powers.
Kannur district, the CPM citadel and former Chief Minister Pinarayi Vijayan’s home district, secured 20.4% of KIIFB’s total allocation. In terms of actual payment, Kannur stood first at 19.1%. It was followed by Thiruvananthapuram (17%) and Ernakulam (11%). The three districts together bagged almost half of the total payment.
“Neither human development indices nor economic need indices provide an obvious justification for this concentration,” the report said, adding that “project distribution reflects political rather than strategic prioritisation”. The board spent just Rs 64 crore for projects related to SC welfare and Rs 18 crore for ST welfare (0.07% and 0.02% of total releases respectively).
Painting a worrying picture, the report said the KIIFB has in effect created a parallel fiscal authority—a second government with its own borrowing programme, its own project pipeline, and its own debt service obligations. But it does not have the revenue streams, accountability mechanisms, legislative oversight, or expenditure controls that govern the state budget. It suggested an immediate performance audit by the CAG.
The previous LDF government revamped KIIFB as an off-budget infrastructure financing vehicle that bypasses Fiscal Responsibility and Budget Management (FRBM) constraints. But after the Union government’s decision to count KIIFB’s borrowings as part of the state’s liabilities, the “off-budget mechanism” lost its relevance. The report recommended an amendment to the Kerala Infrastructure Investment Fund (Amendment) Act, 2016, to stop independent borrowing by the board altogether. Instead, the finance department should borrow at more favourable terms and channel funds to KIIFB, it said.
The state now faces a total obligation of Rs 56,000 crore by way of KIIFB’s loan repayments and pending project commitments. KIIFB’s financial position is precarious. Total inflows to KIIFB since 2017-18 stand at Rs 74,171 crore.
Of the Rs 42,053 crore borrowed, less than Rs 10,000 crore has been repaid. The finance cost, Rs 10,198 crore, is as large as the principal repaid. The fund balance remaining is Rs 10,722 crore, leaving an unmet loan liability of around Rs 21,000 crore. Also, approved projects worth Rs 35,000 crore are yet to be funded.
KIIFB’s financing costs were higher than the government’s own borrowing rates. Since 2017-18, except the Covid year of 2020-21, the rate at which it borrowed was at least 1.5 percentage points higher than the state government’s own borrowings. Over a portfolio of Rs 42,053 crore, a percentage point represents excess annual interest of about Rs 420 crore, it said.
The report called for a forensic audit of KIIFB’s accounts, covering the ‘masala bond’ issuance costs, consultancy payments through CMD, and instances where borrowed funds were deposited back with banks.