KIIFB was set up in 1999 and was restructured in 2016 to address funding gaps in large-scale infrastructure such as roads, hospitals, and educational institutions.
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 caps the fiscal deficit at 3 per cent of gross state domestic product (GSDP).
Instead of borrowing directly through its Budget, the KIIFB raises funds separately to finance infrastructure projects. Opponents call this off-budget borrowing.
Normally, a state’s borrowing is reflected in its Budget and is used to finance the fiscal deficit. Off-budget borrowing is not. Besides KIIFB, another off-budget entity is Kerala Social Security Pensions Limited, which pays social security pensions.
The World Bank data shows that Keralam’s off-budget liabilities at the end of the financial year 2023-24 (FY24) were ₹32,942 crore, or 3 per cent of GSDP, making it third in the list of states, behind Andhra Pradesh (11 per cent) and Telangana (9 per cent).
KIIFB funds a vast spectrum of projects in both physical and social infrastructure sectors. On the social front, KIIFB has revolutionised public services by financing the hi-tech school programme (creating smart classrooms) and substantial upgrades to the health care system, alongside projects in water resources, inland navigation, and IT like the Kerala Fibre Optic Network (KFON).
For decades, Keralam has made its name in public spending on health and education, which lifted human development far above what the state’s income would suggest. Yet that progress has not carried over into capital spending.
Keralam’s budgeted capital expenditure was only 1.3 per cent of GSDP in FY26, one of the lowest among the states. The Comptroller and Auditor General of India (CAG) found that only 5.18 per cent of the state’s borrowing in FY24 went into capital creation.
The panel said KIIFB’s borrowings had reduced the state’s own borrowing capacity by about ₹25,933 crore, because the centre counts them within Keralam’s fiscal deficit limit.
KIIFB’s debt stood at ₹32,198 crore at the end of FY26, and the state would need ₹70,416 crore in the coming years to repay loans and to complete ongoing projects.
The committee also found that 99.4 per cent of the funds the government gave KIIFB between FY22 and FY25 went to repaying loans. Its main advice was that KIIFB stop borrowing from the market and financing projects, with the government taking over its obligations.
The question is not only how much Keralam borrows, but how much of it builds assets. The problem is not necessarily off-budget borrowing itself, but how the money is used and whether the economic benefits justify the cost.
The Domar rule says when the economy’s nominal growth rate is higher than the interest rate on government debt, the debt is easier to manage. For Keralam’s debt, this gap stayed positive over the decade since FY16, except in the pandemic years of FY20 and FY21. The borrowing was economically sustainable in most years.
Satheesan calls KIIFB a “parallel government”. Opposition leader Pinarayi Vijayan calls the report on it a “declaration of war against Keralam”. Between the two sits the larger question: How will Keralam finance its infrastructure in the years ahead?