The Kerala Infrastructure Investment Fund Budget aka KIIFB which was established in 1999 as the principal funding arm for infrastructure development of Kerala has been mired in controversies right from the days of its inception, and they do not end. A litany of criticisms had been raised against KIIFB in the past and they had disappeared soon; some of them were of political nature
However, of late, certain adverse remarks made by the Controller and Auditor General (CAG) regarding fund raising and project management by the KIIFB, and appointment of employees by the entity have raised a slew of fundamental questions about its functioning and the viability of KIIFB model.
The CAG in his report has also been critical of the borrowings of KIIFB and comments that the details need to be included in the budget statement of Kerala. It adds that KIIFB borrowings shouldn’t lead to infraction of Fiscal Responsibility and Budget Management Act (FRBM) which aims to limit fiscal deficit – GDP ratio at 3 percent among other things. Critics of the KIIFB point out that if borrowings are included in the budget, then the whole concept of KIIFB based on off budget borrowings would have to be abandoned.
However, the KIIFB dismissed CAG’s observations as unilateral. It claims to be a body corporate and not a short cut for raising off budget funding It points out that it has funded infrastructure projects worth over Rs 60,000 crore. Refuting criticisms that it has few revenue sources, KIIFB clarifies that it has robust revenue sources. KIIFB claims that at least 25 percent of the projects funded by it, is revenue generating. Besides, a major share of the motor vehicle tax and state government’s cess on petrol goes to its kitty. KIIFB assures that it won’t lead Kerala to a debt trap. However the CAG and critics of KIIFB have rejected many such arguments. They point out that KIIFB’s borrowings are not a contingent liability as it claims, but a liability on state’s own income.
KIIFB’s borrowings to land Kerala in debt trap
Speaking to viakasmudra.com on KIIFB against the backdrop of the present controversies, renowned economist Dr Mary George debunked the claims of the government regarding the utility of the KIIFB. The KIIFB which depends on external commercial borrowings to a great extent is not a sustainable idea for infrastructure development, she said. Kerala is already having a huge outstanding debt of around 3, 27,654 crorre, and the huge borrowings by KIIFB will eventually add to it as KIIFB generates little income. The outcome is going to be appalling. Kerala’s tax and non tax revenue collection are low and when one factors in all those data, the state is likely to fall into a debt trap by 2030, said Dr Mary George. Eventually the responsibility will land on the shoulders of the union government to save Kerala from the debt trap, she commented.
Assessing the KIIFB aided development projects and the work culture there, Dr. Mary George said KIIFB has failed to make any difference to the infrastructure sector in the state. Though KIIFB CEO Dr. K.M. Abraham is an officer with integrity, several charges of delay in completion of works, delay in payment to contractors, corruption and nepotism have been raised against KIIFB funded projects too, she said. Then what major difference did it make in the infrastructure sector of the state other than creating a debt burden? she asked.
Dr Mary George said the borrowings of Kerala which amounts to around 37 percent of the GSDP in 2021-22 is not sustainable. The sustainable limit is up to 29 percent of the GDP which could be raised by two percent in the financial year considering the impact of Covid 19 pandemic. But the borrowings of Kerala are far above the limit and borrowing to the hilt in whatever ways possible is a desperate act, Dr Mary George pointed out that Kerala’s tax revenue and non tax revenue as percentage of GSDP have fallen down over years, and there is total complacency in resource mobilisation.
Complacent tax collection
A section of officials entrusted with tax collection in the state are showing a lackadaisical attitude and rampant tax evasion has been reported from many sectors in the state, noted Dr Mary George. The quarry mafia is one example, she pointed out. Similarly huge tax evasion has been reported from the power sector. The government needs to pull all the stops to increase tax collection. The cost for availing of the services offered by the state government could be raised for those who can afford it as part of increasing non tax revenue, said Dr. Mary George. The practise of revising the salary of state government employees every five years needs to be ended as even the centre revises salary only once in ten years, she noted.
The borrowing model of the KIIFB which results in paying high interest or idling the money raised in bank accounts, many times, because of delays in project execution is not recommended for the state. Dr Mary George agrees that Kerala needs massive investment for infrastructure development. But the time tested route of government funding is the best way for it. For that tax collections should be ramped out and pending tax arrears should be collected. Unnecessary expenditure should be avoided. Tax officials should be made to work assiduously, she said.
Well said, sir