Is KIIFB losing relevance under strict borrowing norms?

Kerala’s infra developer needs to spend Rs57,215 crore to complete remaining projects

CL Jose

THIRUVANANTHAPURAM: Is Kerala Infrastructure Investment Fund Board (KIIFB) slowly losing its relevance due to the central government’s restrictions on the borrowing programme of KIIFB?

KIIFB was established to spearhead the state’s infrastructure developments in the state. The very plank on which KIIFB has been built is to borrow funds from the market with the guarantee of the government and improve the infrastructure of the state.

The Centre’s stand that the KIIFB borrowings made with the guarantee of the state government will be counted as the state’s borrowings has literally thrown spanner in the works of KIIFB.

Already the Centre has instructed to account for the borrowings made during FY21 and FY22 by KIIFB with the state guarantee, and adjust it out of the borrowings to be made by the state in the ensuing years.

Let’s take stock of the finances at KIIFB’s disposal and the projects to be completed by it. KIIFB, though has approved projects worth Rs85,869 crore, has been able to make a cumulative disbursements to the tune of only Rs28,654 crore as on April 30, 2024.

So the biggest question that begs an answer here is how KIIFB plans to fill the large funding gap amounting to a whopping Rs57,215 crore. True, KIIFB maintains a surplus liquidity of about Rs3,300 crore as its corpus, and had cash and equivalent of Rs6,673 crore as on April 30, 2024.

MVT and  cess: The main funding sources

The government has already committed to pass on 50 per cent (progressively growing from 10 per cent in FY17 until it reaches 50 per cent in five years) of the motor vehicle tax (MVT) collected by the department as well as the fuel cess charged on petroleum goods towards KIIFB’s expenses as a regular payment from the Government side.

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Thus the motor vehicle tax (MVT) and petroleum cess started flowing into the KIIFB coffers from 2016-17 (FY17) onwards.). In six years since FY17 until FY24, the total funds reached KIIFB war chest on account of MVT and cess amounted to Rs15,785 crore.

However, it’s evident from the size of the annual flow from MVT and cess that projects worth Rs57,000 odd crores can’t be completed without the help of considerable amount of borrowings.

‘No harm in borrowing’

It was with the single point agenda of ‘borrow today to build tomorrow’s projects’, Dr Thomas Isaac, the then finance minister, had revived KIIFB to wear a new face in 2016 with much fanfare.

Dr Isaac supervised the KIIFB’s large scale borrowing programme, which also had the controversial ‘masala bond’, that raised Rs2,150 crore loan in 2019, from overseas.

In fact, Enforcement Directorate (ED) has been after Dr Isaac to question him on the propriety of KIIFB raising rupee loan from an overseas entity. 

Catch-22

But Centre’s stand on KIIFB’s borrowing from the market has played the spoilsport. KIIFB has been caught in a tight spot as to how the tens of thousands of crores worth remaining projects could be funded without borrowed funds.

Centre has unequivocally stated that the borrowings guaranteed by the Government of Kerala (GoK) are required to be counted as government borrowings and hence will be part of the state’s net borrowing ceiling (NBC), which will in effect clip the financial wings of the state.

“However, KIIFB remains strategically important to Government of Kerala to implement infrastructure and welfare schemes, and the government has permitted the entity to move forward with their borrowing plans for this fiscal,” CRISIL Ratings said in a report a few days ago.

The agency said while the approved borrowing limit for KIIFB in fiscal 2024 was Rs10,000 crore, KIIFB received sanction of Rs5,000 crore. For fiscal 2025, the borrowing plan approved by the board is Rs10,000 crore.