Thiruvananthapuram: Kerala Infrastructure Investment Fund Board (KIIFB) completed 25 years last year. The special purpose vehicle was launched by the left government to carry out infrastructure development in Kerala. The statutory body was envisioned as a non-revenue entity to finance critical infrastructure projects.
KIIFB was established in 11 November 1999 during the tenure of the EK Nayanar-led LDF government (1996–2001). It was established under the Kerala Infrastructure Investment Fund Act. KIIFB has long been regarded as the principal funding arm of the state government.
KIIFB was not active during the EK Nayanar-led LDF government. It got active in 2016 when Pinarayi Vijayan became the chief minister of the state. Dr. Thomas Issack, then finance minister of the state and KM Abraham, the finance secretary amended the Kerala Infrastructure Investment Fund Act. They resurrected KIIFB with the aim of implementing development projects worth Rs 50,000 crores in the state in 5 years. Thus, KIIFB became the brain child of Dr.Issack.
Though, it was aimed to carry out Rs 50,000 crore projects, now it has exceeded. KIIFB has implemented Rs 86,000 crore projects. The value projects announced in the name of KIIFB in the budget from 2016 till now is around Rs 1.50 lakh crore. Over the years, it has played a pivotal role in mobilising resources for large public infrastructure projects.
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But, the body has ignited controversies too. There have been instances of the Comptroller and Auditor General of India (CAG) raising serious concerns over the off-budget borrowings of the KIIFB, stating that they could ultimately become a direct liability of the state government.
However, the financial model that once made it a flagship initiative of the CPI(M)-led government has become a conundrum for the party and government.
With KIIFB’s loans classified as direct liabilities of the government, repayment obligations have put the administration under increasing financial strain.The CPI(M), which has fiercely defended KIIFB in the past, is now exploring ways to make it self-sustaining.
The CAG’s State Finance Audit Report for 2018-19 highlighted that KIIFB, which lacks an independent source of income, relies entirely on petroleum cess and a share of the Motor Vehicle Tax (MVT) allocated by the government. The CAG noted that such off-budget borrowings bypass the borrowing limits set under Article 293(1) of the Constitution. The report emphasised that since the state is raising funds in KIIFB’s name and repaying them using its own revenue, it amounts to a fiscal liability.
Additionally, these borrowings are not reflected in the budget documents, raising concerns about transparency and legislative oversight.
The government, in response to the 2019 report, defended KIIFB’s borrowings, arguing that they were contingent liabilities backed by earmarked revenue sources and had legislative approval. However, the CAG rejected this argument, stating that merely placing KIIFB’s financial statements before the Legislature does not constitute budgetary approval under Article 203(2) of the Constitution.
The Kerala Assembly even passed a resolution against the Comptroller and Auditor General (CAG) in January 2021 when the constitutional body flagged KIIFB’s off-budget borrowings as unconstitutional.
Between 2018-19 and 2022-23, the government transferred a substantial portion of its revenue — ranging from Rs 1,600 crore to Rs 2,469 crore annually — to KIIFB. The government allocated petroleum cess and up to 50 percent of MVT collections to meet these commitments.
In 2019, KIIFB became the first Indian sub-sovereign entity to debut a ‘masala bond’ of Rs 2,150 crore on the London Stock Exchange. A ‘masala bond’ is a debt instrument issued by Indian companies in overseas markets, though denominated in Indian rupees. In November 2020, the Enforcement Directorate (ED) began an investigation into the overseas borrowing of KIIFB for the alleged violation of the Foreign Exchange Management Act (FEMA). The ED had also sought clarifications from the Reserve Bank of India for issuing the No Objection Certificate (NOC) to KIIFB in this regard.
KIIFB has always moved with complete professionalism. However, the government is facing a problem that the liability of the institution which was started to collect money outside the budget also comes under the budget itself. As Kerala grapples with financial constraints, the government is now contemplating structural changes that could redefine KIIFB’s role.
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