KOCHI: Faced with mounting fiscal constraints, the Kerala government is exploring innovative ways to unlock fresh sources of funding, shifting focus to urban local bodies (ULBs) and the Kerala Infrastructure Investment Fund Board (KIIFB).
With its borrowing capacity restricted due to past financing practices, the state is now looking at leveraging the financial strength of corporations and municipalities, and also converting select infrastructure projects undertaken by KIIFB into revenue-generating assets.’
Kerala Finance Minister KN Balagopal as well as the Chief Minister Pinarayi Vijayan have repeatedly pointed thier fingers at the Central Government for the financial stress their government has been undergoing.
Credit rating for ULBs
In a significant move, Kerala has initiated credit rating exercises for its urban local bodies (ULBs) – a step that no other state in India has undertaken at this scale.
With the backing of a healthy credit rating the corporations such as Thiruvananthapuram, Kozhikode, Kochi, Thrissur and Kollam will be able to raise debt from the market without much hassles.
This rating mechanism aims to enable municipalities and corporations to borrow based on their financial health rather than relying entirely on state support.
The move aligns with Kerala’s broader strategy to equip its urban governance structures with enhanced professionalism and service delivery capabilities.
Municipal borrowing in India is largely governed by creditworthiness, state regulations, and central guidelines. With a credible rating, ULBs in Kerala could tap into multiple funding sources.
Eyeing bond market for ULBs?
Municipal bonds: Well-rated municipalities can issue bonds to fund infrastructure projects, as seen in cities like Pune and Ahmedabad.
Loans from financial institutions (FIs): Entities like HUDCO, NABARD, and commercial banks could extend project-specific loans to ULBs.
State-backed borrowing: In some cases, ULBs can borrow with Kerala government guarantees, enhancing creditworthiness.
Public-private partnerships (PPPs): Partnering with private players can ease the financial burden on ULBs while ensuring better service delivery.
KIIFB’s shift towards revenue-generating projects
The Kerala government is also restructuring KIIFB’s financing model. Until now, borrowings by KIIFB and Kerala State Social Security Pension Limited (KSSPL) were included in the state’s overall debt calculation by the Centre, limiting Kerala’s ability to raise additional funds.
The Centre categorised these entities’ borrowings as state liabilities because they were not designed to generate revenue. However, Kerala is now moving to alter this perception by converting several KIIFB projects into revenue-earning assets.
One of the key changes said to be under consideration is allowing toll collection on roads and bridges built by KIIFB at a cost of over Rs50 crore. This shift is expected to make KIIFB a self-sustaining entity, reducing dependency on state finances.
The move is expected to open doors for fresh loans by KIIFB, since revenue-backed borrowings are treated differently from direct state liabilities. Moreover, the tolls could strengthen KIIFB’s revenue generation.
