THIRUVANANTHAPURAM: The Congress-led UDF government's approach to the Kerala Infrastructure Investment Fund Board (KIIFB) is beginning to take shape, with 'Kerala's Fiscal Health: A Status Report' tabled in the Assembly on Thursday, recommending a fundamental restructuring of the state's flagship infrastructure financing institution rather than its outright dismantling.
The report, tabled by Chief Minister and Finance Minister V D Satheesan, acknowledges that KIIFB was a "bold institutional innovation" that helped Kerala significantly expand infrastructure spending at a time when fiscal constraints under the Fiscal Responsibility and Budget Management (FRBM) framework limited the state's borrowing capacity.
However, it argues that the institution's core premise has been undermined following the Comptroller and Auditor General's (C&AG) finding that KIIFB's borrowings are effectively government borrowings and must be counted against Kerala's annual borrowing ceiling.
"The question is no longer whether KIIFB should continue in its current form—the C&AG ruling has effectively answered that," the report states.
The report notes that KIIFB was restructured in 2016 to mobilise resources outside the conventional budgetary process and finance both physical and social infrastructure.
Over the past nine years, it has raised more than Rs 42,000 crore through borrowings and helped fund roads, bridges, hospitals, schools, and other projects across the state.
At the same time, the report points to what it describes as structural weaknesses that have emerged over the years.
Among its most significant findings is that KIIFB's borrowing costs were consistently higher than those of the state government. According to the report, except during the pandemic year of 2020-21, KIIFB borrowed at rates at least 1.5 percentage points above government borrowing costs.
On a borrowing portfolio exceeding Rs 42,000 crore, even a one percentage point difference translates into hundreds of crores in additional annual interest costs.
The report also highlights Kerala's growing liabilities linked to KIIFB. It estimates that the state faces obligations of roughly Rs 56,000 crore, including outstanding debt commitments and funding requirements for already approved projects.
Questions have also been raised regarding project distribution.
The report notes that Kannur, Thiruvananthapuram, and Ernakulam together accounted for nearly half of the approved project allocations and disbursements.
It argues that the concentration does not appear to be guided by any clearly articulated infrastructure-gap assessment or development index.
Governance concerns have been flagged as well. These include the conferral of secretary-level powers on the KIIFB CEO through a 2017 government order, diversion of 50% of motor vehicle tax revenues to KIIFB, high costs associated with the Masala Bond issue, consultancy payments that require closer scrutiny, and instances where borrowed funds were reportedly deposited back with banks, leading to avoidable carrying costs.
Despite the criticism, the report stops short of recommending that KIIFB be wound up. Instead, it proposes a transition model under which the institution's financing role would be significantly curtailed while its technical and administrative capabilities are retained.
The report recommends that KIIFB be prohibited from undertaking independent market borrowings. Instead, the Finance Department should raise funds directly at lower interest rates and route them to KIIFB for meeting existing commitments.
It also recommends ending the diversion of state revenues, particularly motor vehicle tax collections, into KIIFB's escrow arrangements, arguing that the mechanism no longer serves its original purpose, given that KIIFB borrowings are now counted as state debt.
At the same time, the UDF government appears keen to preserve what it considers KIIFB's genuine institutional strengths. The report praises the organisation's expertise in project appraisal, quality control, sustainability initiatives, digital project monitoring, and climate-resilient infrastructure planning.
These capabilities, it says, should be integrated into government departments rather than lost.
The report also calls for a forensic audit covering the Masala Bond issue, consultancy payments, and financial management practices, while urging KIIFB to prepare a comprehensive statement of all future liabilities, including debt repayments, interest obligations, and pending project commitments.
Experts reckon the emerging UDF position, therefore, is not one of abandoning KIIFB altogether but of redefining its role.
If the recommendations are implemented, KIIFB would cease to function as an independent borrowing vehicle and instead evolve into a specialised infrastructure appraisal and monitoring agency, with the state government itself assuming responsibility for raising funds and managing debt.
Such a transition, the report suggests, would allow Kerala to retain the institutional capacity built over the past decade while addressing concerns over fiscal sustainability, transparency, and accountability.
