‘No case’ for continuation of KIIFB as a body that raises funds and finances projects, says Sudha Pillai panel report

The committee led by former bureaucrat Sudha Pillai tasked with reviewing the Kerala Infrastructure Investment Fund Board (KIIFB) has said it finds “no case” for the continuation of KIIFB as a body that raises funds and finances projects, and that its functioning has “significant detrimental impact on the future fiscal trajectory of the State.”

The original rationale for KIIFB – raising capital without using the State’s borrowing space – “has been extinguished” since its borrowing is now counted as direct borrowing by the State, said the panel’s 96-page report which Chief Minister V.D. Satheesan tabled in the State Legislative Assembly on Thursday (October 15, 2026).

Sharply critical of aspects such as KIIFB’s off-Budget borrowings, the ratio of revenue-generating projects in the total basket and the routing of motor vehicles tax and petroleum cess to KIIFB, the report has recommended a performance audit of KIIFB by the Comptroller and Auditor General of India or the Accountant General, Keralam, covering a 10-year-period from 2016-17 to 2025-26. Further, the KIIFB (Amendment) Act, 2016 should be amended to prevent KIIFB from, henceforth, raising funds through market borrowings, the report said.

It has asked the government to take over the repayment obligations arising from the bonds, debentures and loans of KIIFB by making adequate provisions in the Annual Budget. Once the government takes over the debt obligations, it should cancel the order routing a share of revenue from motor vehicles tax and petroleum cess to KIIFB, the report said.

Ongoing infra projects

Infrastructure projects already started by KIIFB and are at various stages of implementation should be completed by the government departments concerned with the support of implementing agencies. The funds required for completing these projects should be earmarked as capital expenditure in the Annual Budget over the next five years, starting 2026-27.

A significant observation in the report is the following: Had the State undertaken infrastructure investment directly instead of routing it through KIIFB, it could have spent ₹61,678.46 crore, compared with the ₹48,574.82 crore disbursed or held as cash by KIIFB. As on September 29, 2026, the share of motor vehicles tax and petroleum cess transferred to KIIFB by the government stood at ₹26,165.93 crore. The amount so far deducted by the Centre from the borrowing space of the State as off-Budget borrowing amounted to ₹25,932.53 crore. Thus, the total receipts so far foregone by the State is ₹52,098.46 crore. The borrowing raised by the KIIFB in 2025-26 was ₹9580 crore and this also needs to be added to ₹52,098.46 crore. The total comes to ₹61,678.46 crore and the report argues that this is the total loss in the State government’s receipts owing to the KIIFB financing model.

“The above comparison can also be interpreted differently. Had the State undertaken infrastructure investment directly instead of routing it through KIIFB, it could have spent ₹61,678.46 crore, compared with the ₹48,574.82 crore disbursed or held as cash by KIIFB. Further, the prioritisation of such spending would have been subject to the deliberative process involving the Legislature and the Kerala State Planning Board, and the plan allocations for the Scheduled Castes and Scheduled Tribes would have applied. Thus, the diversion of infrastructure spending through KIIFB entails not only a substantial financial loss but also a significant welfare loss,” the panel concluded.

It concurred with the CAG’s conclusion that KIIFB’s borrowings are not contingent liabilities as maintained by the previous LDF government. They are off-Budget borrowings bypassing Article 293, lacking legislative approval, and that, as the CAG noted, a guarantee is contingent only where the borrowing entity repays from its own resources.

Further, the report observed that revenue-generating projects of KIIFB account for 22.63% of the total approved project amounts and 20.98% of total funds released. “That is, only about one-fifth of KIIFB’s project funding is classified as revenue-generating, with the remainder’s repayment falling on budgetary transfers,” it said. Again, the allocation of infrastructure outlay is “heavily concentrated” in a few districts, while several districts, including some of the State’s more backward and hilly regions, receive a disproportionately small share, the committee found. Sectoral allocation is similarly concentrated among a few large-spending departments, principally the Public Works Department, leaving the remaining departments to share a comparatively small residual pool.

As part of the recommendations, the government has also been advised to replace or swap KIIFB’s existing high-cost debt with lower-cost liabilities, wherever feasible, to reduce the interest burden. The report also recommends the re-deployment of KIIFB staff and urges the government to bring KIFCON, the KIIFB consulting arm, under the Kerala State Planning Board for helping preparation of externally financed projects for local bodies. Similarly, The Kerala State Industrial Development Corporation (KSIDC) should take over KIIFB’s shareholding in the Kerala Infrastructure Fund Management Limited (KIFML), an associated company of KIIFB.

The panel had as its members Shyam Srinivasan, former managing director and Chief Executive Officer, Federal Bank; Nilesh Vikamsey, former Chairman, Association of Chartered Accountants of India and partner, KKC & Associates; H. Shubhalakshmi Narayanan, former Director, Audit Board of the Comptroller and Auditor General of India, and Tarun Bajaj, former Revenue Secretary, Government of India.

Published – October 15, 2026 03:24 pm IST