CM Satheesan tables 'White Paper' on Keralam economy, calls for overhaul, 'forensic audit' of KFIIB accounts
Thiruvananthapuram Jun, e 4
The newly elected United Democratic Front government in Keralam, led by Chief Minister and Finance Minister V D Satheeshan on Thursday released a comprehensive "Status Report" on the State's fiscal health, painting a picture of an economy under extreme "structural stress."
Further, the 'Kerala's Fiscal Health: A Status Report' labelled Kerala Infrastructure Investment Fund Board (KIIFB) as a "parallel fiscal authority" that has created a Rs 56,000 crore financial obligation for the State. This includes Rs 21,000 crore in unmet loan liabilities and Rs 35,000 crore required for projects already in the pipeline.
The Status report, prepared by a committee chaired by former Cabinet Secretary K M Chandrasekhar, revealed that the State is grappling with a massive debt of Rs 5.07 lakh crore and inherited payment arrears totalling nearly Rs 48,733 crore.
The 'White Paper,' which seeks to provide a baseline for the new government's tenure following the May 2026 Assembly elections, recommends a forensic audit into KIIFB's operations and a complete overhaul of its constitutional structure. Established in 1999 as the state's principal infrastructure funding vehicle, KIIFB was established in its current form in 2016 to raise financial resources from the market through innovative methods.
The report tabled in the 16th Kerala Legislative Assembly revealed a heavy regional concentration of funds, noting that Kannur district alone accounts for over 20 per cent of total approved amounts and 19 per cent of payments released. Along with Thiruvananthapuram and Ernakulam, three districts absorbed nearly half of KIIFB's total expenditure, a distribution the report claims lacks "obvious justification" based on economic need or human development indices.
"KIIFB created a second government with its own borrowing programme and project pipeline, but without the revenue streams, legislative oversight, or expenditure controls that govern the State budget," the report stated. It further noted that since the Comptroller and Auditor General (C&AG) and the Union Government now include KIIFB's borrowings within the State's official net borrowing ceiling, the institution has "lost its foundational rationale."
The CM-led report pointed out a significant financial drain caused by KIIFB's independent borrowing. It revealed that KIIFB's cost of raising funds is 1 per cent to 1.5 per cent higher than the State Government's own borrowing rates. This differential results in an estimated excess interest burden of Rs 420 crore annually.
The report also raised alarms over the 2019 Masala Bond issuance, noting that the Rs 11 crore cost incurred to raise the bond appeared "unjustifiably high" and lacked transparent documentation.
"Auditors have noted that supporting documents pertaining to payments were not made available for scrutiny. Additionally, large sums passed through CMD under consultancy services whose terms are not entirely transparent. These warrant detailed forensic audits," the report tabled by Satheesan said.
The report described KIIFB as "a bold institutional innovation - an attempt to create a professionally managed, market-facing infrastructure financier that could bypass the fiscal constraints binding the State budget."
"Over nine years, it has built real organisational capacity, financed significant infrastructure, and pioneered quality, sustainability and digital management practices that the state government would do well to retain," the Report stated. However, it's fundamental premise now stands undermined, the report noted.
The White Paper noted that KIIFB borrowings are now State borrowings and that its financing costs are consistently higher than government borrowing rates. "It's project distribution reflects political rather than strategic prioritisation. And the State faces a combined obligation of roughly Rs 56,000 crore in loan repayments and project funding commitments - a burden whose full weight is only beginning to be felt," the White Paper said.
"The question is no longer whether KIIFB should continue in its current form as the C&AG has effectively answered that. The question is how to manage the transition: honouring committed liabilities, retaining institutional capacity, amending the legal framework, and ensuring that the costs accumulated are transparently accounted for and prudently managed in the years ahead," the report stated.
The committee in its recommendation, stated that "KIIFB has built genuine institutional capacity in market borrowing, project appraisal, technical and administrative inspection, climate-resilient infrastructure, and integrated IT platforms."
"It would be wasteful to dismantle this", the report stated, recommending that "these capacities should be absorbed into or made available to government departments to improve project preparation and implementation quality."
The Chief Minister Satheesan, who also holds the Finance Portfolio of the State described the 2026-27 budget assumptions as "fundamentally flawed" and "injudicious." The 2026-27 budget assumptions for Kerala were presented by the previous Left Democratic Front (LDF)-government's finance minister K N Balagopal, on January 29, 2026.
"The Financial White Paper has been tabled in the Assembly. This is not a political document, but a fact-based assessment of Kerala's fiscal position inherited by the new government. The State's outstanding liabilities have reached ₹5.07 lakh crore, accounting for 35.5% of GSDP--well above the national average. With 77.6% of revenue receipts absorbed by salaries, pensions, and interest payments, the fiscal space available for development and public investment has narrowed considerably," Satheesan took to X to post.
"The assumptions underlying the 2026-27 Budget have proved to be fundamentally flawed, particularly in projecting a substantial Revenue Deficit Grant and an unduly optimistic level of Central tax devolution. This has resulted in a significant shortfall for the new Government. Addressing these challenges requires an honest diagnosis and a shared commitment to reform," the Status Report noted.
Keralam's outstanding liabilities are estimated at Rs 5.07 lakh crore (35.5 per cent of the Gross State Domestic Product (GSDP)), significantly higher than the national average of 29.2 per cent and the major states average of 28.81 per cent.
A total of 77 per cent of the state's revenue is pre-empted for salaries, pensions, and interest payments, leaving "barely one rupee in four" for schools, hospitals, and infrastructure.
The 'White Paper' slams the practice of "back-loading" borrowings in March to create an "optical improvement" in cash balances, noting that the treasury ran negative balances in 10 out of 12 months in 2024-25.
The report identifies Public Sector Enterprises (PSEs) as a primary drain on the exchequer.
The accumulated loss of all PSEs surged from Rs 31,571 crore in 2021-22 to Rs 78,851 crore in 2024-25. KSRTC (Transport), KWA (Water), and KSEBL (Electricity) account for 72 per cent of the net loss.
The report notes that KSEBL has been withholding electricity duty collected from consumers for three decades instead of remitting it to the Consolidated Fund.
"The fiscal impact of the operations of the PSEs is large and cannot be ignored. In this context, the Committee recommends that essential public utilities must continue to remain accessible and affordable to poorer sections of society. However, social responsibilities should not be used to mask operational inefficiencies or financial mismanagement. A way out is to transform the system from production-based subsidies to consumption-based subsidies. Further, violation of the cardinal principle that revenues of the Government must flow to the Consolidated Fund should not be permitted such as electricity duty not being remitted by the KSEBL," it stated.
Given KSEBL's inability to complete projects, the report calls for opening the power sector to private and Central public sector investments.
The status report highlights a social crisis hidden behind Keralam's human development indicators.
While Keralam is India's most educated state, the unemployment rate among females with higher secondary education stands at 20.7 per cent- nearly five times the national average.
Remittances account for 23.2 per cent of the Net State Domestic Product, but the report warns this "cannot substitute for a productive domestic economy."
The committee has proposed several "hard political decisions" to pull the state out of its fiscal quagmire.
A key recommendation is to raise the retirement age of state employees to match the Central Government level. The report estimates this would save Rs 6,000 crore in retirement benefits for every year the age is increased.
To reduce tax outgo, the report suggests merging the profit-making Kerala State Beverages Corporation with the loss-making Civil Supplies Corporation.
As per the report Keralam's total debt is Rs 5.07 lakh crore. The inherited arrears is at Rs 48,733 Crore (including Rs 21,670 Cr in DA arrears). Interest payments is 20.9 per cent of revenue receipts. The capital expenditure is at 1.34 per cent of GSDP (among the lowest in India) and the KIIFB Loan liability is at Rs 21,000 crore (unmet).
— ANI
Reader Comments
Honestly, this is a predictable mess. When you keep borrowing for showpiece projects and ignore revenue generation, this is what happens. But I'm glad CM Satheesan is being transparent about it. The recommendation to merge Beverages Corp with Civil Supplies Corp is actually genius—use liquor profits to fund essential supplies! Need more out-of-the-box thinking like this.
Interesting read. As someone who follows India's state finances, Kerala's situation is concerning but not unique. The 20.7% female unemployment with higher ed is a tragedy waiting to happen. Remittances can't be the backbone forever. The white paper's call to raise retirement age and reform PSEs is sound economics—hope the political will exists to implement it.
This is a brilliant move by Satheesan. Expose everything now so the UDF can blame LDF for the next 5 years. But we all know that once in power, they'll do the same things. KIIFB was a good idea badly implemented—infrastructure needs funding, but not without oversight. The forensic audit is essential; let's see if they actually do it or just talk. 🧐
The report's honesty about KIIFB being a 'parallel government' is refreshing. You cannot have a body that borrows without legislative oversight and then expect fiscal discipline. But the report also rightly says KIIFB built real capacity in project management. The answer isn't destruction but absorption into proper government frameworks. Wise recommendation.
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