KIIFB or Parallel State? Even former Finance Minister Balagopal's warning was thrown to winds

The Sudha Pillai Committee, which did a comprehensive review of the Kerala Infrastructure Investment Fund Board (KIIFB), had found that a meeting convened by Chief Minister Pinarayi Vijayan with Finance Minister K N Balagopal in March 2025 had overruled the Finance Department's decision not to stand guarantee for the loans taken by the Board.

This suggested that both the Chief Minister and the finance minister had jointly dismissed the cautious line the Department wanted to adopt. Now, minutes of an official meeting has surfaced in which Finance Minister K N Balagopal is seen to have endorsed his Department's stand.

In June 2023, the then finance secretary Bishwanath Sinha said in his official note that guarantees to KIIFB should not be persisted with. If so, he reasoned that KIIFB's borrowings would compress Kerala's borrowing space. Take the secretary's words seriously, the finance minister said in an official note written four months later, on October 20.

"What the finance secretary has said should be a matter of serious consideration," Balagopal said. "Considering the existing Central government policy, any kind of borrowing by KIIFB would gravely undermine the government's already poor liquidity position and affect day-to-day affairs. Only if there is a favourable Supreme Court verdict on Kerala's borrowing limit can we go ahead with the recommended guarantees," he said and forwarded the file for the Chief Minister's consideration.

At that point, the Kerala government had already moved the Supreme Court against the Centre's move to deduct KIIFB's borrowings from the state's annual borrowing limit.

However, a meeting convened by the Chief Minister nearly eight months later on June 5, 2024, decided to ignore the concerns and raced ahead with the practice of providing guarantees to KIIFB.

Even before the Centre had changed the rules of the game by refusing to consider KIIFB loans as separate from the state budget, a certain level of arbitrariness had crept into the functioning of the Board. The Sudha Pillai Committee noted that only the first three guarantees, covering KIIFB borrowings of ₹18,246.73 crore, up to November 2021, were sanctioned by the Finance Department.

Though these had the Department's sanction, the guarantee deeds, tenure, rate of interest and other conditions of borrowing related to these guarantees were not submitted to the Finance Department for approval.

From then on, there was not even such a show of seeking the Department's approval. "All subsequent guarantees were issued by the Finance–Infrastructure wing of KIIFB on the basis of an approval issued by a Deputy Secretary of the Finance Department without the approval of the Finance Secretary and Finance Minister or Council of Ministers," the Committee noted. The Committee further said that no competent authority in the Finance Department had access to the files of the Finance (Infrastructure) wing of KIIFB.

Its influence over KIIFB was gradually getting eroded but the Finance Department out up a fight only after the Centre had changed the ground rules. And now, through the file notings, it has come to light that the Department's cautionary stand was overruled even though the then finance minister, too, had observed that there was merit in the Department's stand.

"The Committee is of the view that such overruling of the Finance Department’s decision is inconsistent with the Rules of Business of the Government. Such a decision of the Finance Department can be overruled only by the Council of Ministers, and the department is required to issue a Government Order in accordance with the Cabinet decision," the report of the Sudha Pillai Committee said.