With political discord and public perception at stake, the road ahead for KIIFB remains uncertain. Whether the government’s recalibration will ensure its long-term viability or fuel further controversy will be a defining test for this statutory body's fiscal sustainability.
Published Feb 12, 2025 | 8:00 PM ⚊ Updated Feb 12, 2025 | 8:00 PM
KIIFB.
Synopsis: The Kerala government is exploring ways to make KIIFB self-sustaining, including structural changes that could redefine its role. However, its initial move — introducing a user fee on select KIIFB-funded roads — has met with strong opposition. UDF slammed KIIFB as an expensive “borrowing entity” that has driven Kerala into a debt crisis.
Even as the Kerala Infrastructure Investment Fund Board (KIIFB) completed 25 years since its establishment on 11 November 1999, the LDF government finds itself at a crossroads.
The statutory body, envisioned as a non-revenue entity to finance critical infrastructure projects, is now being considered for a transformation into a revenue-generating institution — a significant departure from its founding principles.
Established during the tenure of the EK Nayanar-led LDF government (1996–2001) under the Kerala Infrastructure Investment Fund Act, KIIFB has long been regarded as the principal funding arm of the state government.
Over the years, it has played a pivotal role in mobilising resources for large public infrastructure projects.
However, the financial model that once made it a flagship initiative of the CPI(M)-led government has become a conundrum for the party. 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.
In a marked example of its commitment to protecting KIIFB, 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.
As Kerala grapples with financial constraints, the government is now contemplating structural changes that could redefine KIIFB’s role.
The shift from a non-revenue model to a revenue-generating one signals a fundamental rethink in the way the state approaches infrastructure funding. However, whether this move will resolve KIIFB’s financial challenges or spark new debates remains to be seen.
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.
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.
Between 2018-19 and 2022-23, the government transferred a substantial portion of its revenue — ranging from ₹1,600 crore to ₹2,469 crore annually — to KIIFB.
The government allocated petroleum cess and up to 50 percent of MVT collections to meet these commitments.
The CAG warned that such practices not only violate financial discipline but also affect intergenerational equity, as future taxpayers would bear the burden of undisclosed liabilities. The report underscored the need for greater transparency and compliance with constitutional provisions in managing the state’s debt obligations.
In a bid to ensure financial sustainability, the state government is exploring ways to transform the KIIFB into a revenue-generating entity. However, its initial move — introducing a user fee on select KIIFB-funded roads — has met with strong opposition.
The proposal, based on a recent feasibility study, suggested charging long-distance commuters ₹5 or ₹10 for using roads built with investments exceeding ₹50 crore, particularly for journeys spanning at least 30-40 km.
However, the Opposition fiercely resisted the idea, warning widespread protests if it was implemented. They accused the government of attempting to shift KIIFB’s financial burden onto the public, arguing that it contradicts the original funding model.
Former Kerala finance minister TM Thomas Isaac, a staunch advocate of KIIFB, defended the government’s approach, claiming hurdles imposed by the BJP-led Union government.
He pointed out that while KIIFB was initially designed as an annuity-based model free from toll levies, the Union government’s decision to treat its borrowings as direct state debt has necessitated a rethink.
Blaming both the Union government and the Congress-led UDF for KIIFB’s financial struggles, Isaac challenged the Opposition to propose alternative funding strategies.
The LDF government’s commitment to reshaping KIIFB’s operational framework was further underscored in the 2025-26 State Budget.
Meanwhile, Finance Minister KN Balagopal announced plans to launch revenue-generating projects under KIIFB, including two pilot initiatives: An IT (Information Technology) park in Kollam and another at the Kallada Irrigation Project campus in Kottarakkara. These projects, to be developed on government and public sector lands, are expected to be profitable.
The IT park in Kollam, which will be established through a tripartite agreement between KIIFB, Kerala Industrial Infrastructure Development Corporation (KINFRA), and the Kollam Corporation, is expected to complete its first phase by 2025-26. The Kottarakkara IT park, with a built-up area of 97,370 sq ft, will follow.
Depending on the success of these pilot projects, the government plans to launch 100 new infrastructure projects over the next two years by utilising underutilised land owned by local bodies, government departments, and Public Sector Undertakings (PSUs).
While the roadmap for KIIFB’s transformation is still evolving, the government has signalled a shift towards more aggressive revenue-generation strategies.
A recent paper by the Gulati Institute of Finance and Taxation (GIFT), an autonomous body under the Kerala government, has raised concerns over the sustainability of the KIIFB.
The paper, titled Exploring Own Sources of Revenue for KIIFB, highlighted the institution’s dependence on deficit financing and the absence of innovative revenue-generating methods.
With the CAG classifying KIIFB’s off-budget borrowings as state debt, the study underscores the need for a more sustainable financial strategy.
It suggested that KIIFB should move beyond being a mere debt-generating entity by tapping into innovative revenue sources. A key recommendation is leveraging the space created by KIIFB-funded infrastructure projects to generate income while aligning with sustainable development goals, such as resilient infrastructure and climate-conscious urban planning.
The study concluded that KIIFB must establish its own financing streams to enhance credibility and financial independence.
By showcasing its revenue potential, the institution can attract further investments without solely relying on state guarantees. The findings add to the ongoing debate on KIIFB’s fiscal model and its long-term viability amid growing scrutiny.
On 10 February, the KIIFB once again became the focal point of a heated exchange between the Opposition and treasury benches in the Kerala Assembly, as the ruling LDF and the Opposition UDF clashed over its role in the state’s financial health.
While the UDF slammed KIIFB as an expensive “borrowing entity” that has driven Kerala into a debt crisis, the government defended it as a vital force for infrastructure development.
During an adjournment debate, Congress MLA Roji M John accused KIIFB of worsening Kerala’s financial burden through high-interest off-budget borrowings with minimal tangible results. Branding it a “white elephant,” he quipped, “KIIFB promised a land of milk and honey. Instead, it rendered Kerala debt-ridden.”
Leader of the Opposition VD Satheesan reinforced the criticism, alleging that KIIFB had completed less than 20 percent of its projects while sidelining key departments like the public works.
However, Balagopal hit back, accusing the Congress of aligning with the BJP in an attempt to “strangle” KIIFB.
He suggested that the timing of the attack was strategic, coinciding with the Supreme Court’s upcoming hearing on whether Kerala has an enforceable right under Article 293 of the Constitution to raise its borrowing limits.
With political discord and public perception at stake, the road ahead for KIIFB remains uncertain. Whether the government’s recalibration will ensure its long-term viability or fuel further controversy will be a defining test for this statutory body’s fiscal sustainability.
Even as the debate raged over whether the KIIFB should collect a toll or user fees, Chief Minister Pinarayi Vijayan on Wednesday, 12 February, supported the idea.
Responding to Opposition allegations in the Assembly, he said that making KIIFB projects revenue-generating would help counter the central government’s stance that its borrowings should be included in the state’s debt limit.
“The Centre claims that institutions like NHAI generate revenue through tolls, but in reality, toll collections contribute only a fraction of their repayments. The rest comes from open-market borrowings and grants. The Supreme Court has recognised Kerala’s arguments and that’s why it referred the case to the Constitution Bench,” Vijayan said.
He reiterated that KIIFB was being audited by multiple agencies, including the CAG, and accused the Opposition of misleading the public.
Vijayan emphasised that KIIFB has played a key role in Kerala’s development, citing the ₹336 crore Chellanam coastal protection project as an example.
“If user fees are introduced, KIIFB’s financial sustainability can be ensured, and government grants can be phased out,” he argued, asserting that the institution’s credibility remains strong due to timely loan repayments and a good credit rating.
(Edited by Muhammed Fazil.)
