Finance dept decision against guarantees for KIIFB borrowings in three fiscals overruled by LDF: Sudha Pillai panel

A Finance Department decision not to provide guarantees for the borrowings of the Kerala Infrastructure Investment Fund Board (KIIFB) in three consecutive fiscals had been overruled during Left Democratic Front (LDF) rule, amounting to a serious violation of the Rules of Business of the State.

The finding is part of the 96-page report of the expert committee headed by former Finance Commission member secretary Sudha Pillai which conducted a review of KIIFB. The report, laid in the Assembly on Thursday, also indicates how the Finance Department was practically kept in the dark about transactions that had a direct bearing on State finances.

The Finance Department declined to provide the guarantees in 2023-24, 2024-25 and 2025-26 on the grounds that the KIIFB borrowings would reduce the State’s borrowing space. The department’s stand apparently came after the Comptroller and Auditor General of India (CAG) concluded that KIIFB borrowings are direct borrowings of the State.

Nevertheless, this decision was subsequently overruled following a meeting convened by then Chief Minister Pinarayi Vijayan with then Finance Minister K.N. Balagopal and then Additional Chief Secretary (Finance) and CEO, KIIFB, K.M. Abraham. Later, a government order was also issued by the Finance (Infrastructure) wing of KIIFB.

However, this is inconsistent with the Rules of Business, the committee noted. Any such decision of the Finance department can be overruled only by the Council of Ministers. The department is also required to issue a government order in line with the Cabinet decision.

KIIFB was extensively used by the previous CPI(M)-led Left LDF government for financing big infrastructure projects. The Sudha Pillai committee was formed by the Congress-led United Democratic Front (UDF) government which took over in May this year to recommend measures for its restructuring.

Moreover, the panel found that the Finance Department had cleared only the first three guarantees – covering KIIFB borrowings of ₹18,246.73 crore – in July 2018, March 2021 and November 2021. All subsequent guarantees were issued by KIIFB’s Finance-Infrastructure wing on the basis of an approval issued by a Deputy Secretary of the Finance Department, but without the approval of the Finance Secretary, the Finance Minister or the Council of Ministers. The Committee also noted that the Finance Department had no access to the files of the Finance-Infrastructure Wing of KIIFB.

As a result of the Kerala Infrastructure Investment Fund (Amendment) Act, 2016, every rupee borrowed by KIIFB has been a guaranteed borrowing under a statutory obligation, and not a result of case-by-case examination.