KIIFB exposed
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The expert committee appointed for reviewing the functioning of KIIFB has found serious irregularities in the functioning of the Kerala Infrastructure Investment Fund Board (KIIFB), which was established to raise funds outside the budget for the development of the state's infrastructure. The committee, chaired by Sudha Pillai, has identified several serious issues, including placing a huge financial burden on the state through its borrowing powers, in effect running a parallel administration by keeping the government and the Finance Department in the dark, and taking charge of large-scale recruitment by misusing its powers. Reports by the Finance Commission and the Comptroller and Auditor General (CAG) in previous years had warned of legal issues, including those relating to raising funds outside the budget. As Leader of the Opposition during the previous government, V.D. Satheesan had raised debates on the issue both inside and outside the Assembly. The expert committee's report ratifies all these allegations and warnings with credible data.
KIIFB was established in 1999 during the EK Nayanar government. The institution, which operated independently under the Kerala Infrastructure Investment Fund Act, remained more or less dormant for about 15 years. In 2014, the Oommen Chandy government made some attempts to revive KIIFB. The aim was to restructure it into a market-based fund-raising mechanism to mobilise the capital required for infrastructure projects. A committee headed by K.M. Chandrasekhar, then vice-chairman of the State Planning Board, examined the proposals in this regard. The move sought to achieve three objectives: raising immediate funds to settle dues owed to contractors, providing interim financial assistance for infrastructure projects identified by the government, and establishing a long-term fund-raising mechanism for future development projects. For this purpose, the committee also suggested setting up mechanisms such as an Alternative Investment Fund (AIF), an Infrastructure Investment Trust and an Infrastructure Development Fund (IDF). The ultimate goal was to sell a portion of the government's stake once commercially viable projects began generating revenue and to use the proceeds to fund new investments, thereby avoiding the need to find fresh funds for large-scale projects.
The Pinarayi government, which came to power after Oommen Chandy, sought to implement these recommendations in a different manner. The then Finance Minister, Thomas Isaac, transformed the board into a new system by amending the KIIFB Act itself, departing from the approach envisaged in 2014. He announced that the objective was to stimulate the economy by significantly increasing capital expenditure in the infrastructure sector. In its first budget after coming to power, the government made KIIFB the principal instrument of its Rs 20,000-crore economic stimulus plan. One of the changes introduced by the Pinarayi government was a provision to allocate a substantial portion of the state's own revenue to KIIFB. The expert committee has outlined the consequences of this decision. Following the introduction of GST, motor vehicle tax and fuel cess became the state government's principal sources of state tax revenue. Under the revised provision, 10 per cent of the motor vehicle tax collected in the previous year was to be transferred to KIIFB in the first year, with the allocation increasing by 10 percentage points each subsequent year to reach 50 per cent in the fifth year. In addition, the cess collected on petroleum products was also earmarked for KIIFB. As of June 30, 2026, Rs 19,404.52 crore had been transferred to KIIFB as its share of motor vehicle tax. Another Rs 5,038.04 crore had been paid from petroleum cess, along with Rs 322.07 crore as an additional government contribution. Including these amounts, the state government had transferred a total of Rs 24,764.64 crore to KIIFB. Such a substantial diversion of the state's own revenue was certain to reduce the government's capacity to spend on other development needs, particularly during economic crises. That is precisely what happened in practice. It is also worth noting that this diversion of funds from within the budget has continued even as extra-budgetary fund-raising has proved a major failure.
The committee also identifies the expansion of the definition of infrastructure development and the inclusion of 23 items within KIIFB's scope as major shortcomings in the changes made to its structure. These changes have had a significant economic impact. KIIFB has incurred liabilities amounting to Rs 75,000 crore. Moreover, the additional resources raised through KIIFB have resulted in the loss of borrowing capacity of the state worth a quarter of a lakh crore rupees. In short, the crux of the committee report is that the KIIFB scheme, introduced as a safeguard against the retaliatory measures of the central government, including economic sanctions, has instead led to a major economic disaster. In spite of this, the scheme cannot be wound up quickly. Many KIIFB projects are halfway through, with financial commitments still outstanding. Given this situation, the government must urgently consider ways and means to extricate itself from this quagmire.