To draw a fiscal baseline before it gets down to business, the newly elected United Democratic Front (UDF) government in Kerala tabled a 195-page financial White Paper in the State Assembly on Thursday, claiming that it has inherited a monumental debt burden of Rs 5.07 lakh crore.
The White Paper, titled “Kerala’s Fiscal Health: A Status Report,” was prepared by an expert committee led by former Cabinet Secretary K.M. Chandrasekhar.
Presented by Chief Minister and Finance Minister V.D. Satheesan, the document paints a dark picture of the State’s finances.
“This is not a political White Paper. This document is intended to serve as a basic roadmap for building the future of Kerala,” the Chief Minister said.
According to the White Paper, the State’s outstanding liabilities totalling Rs 5.07 lakh crore represent 35.5% of the State’s Gross State Domestic Product (GSDP), far higher than the national State average of 29.2%.
It says that as much as 77% of Kerala’s total revenue receipts is consumed by committed, non-discretionary expenses such as salaries, pensions, and interest payments, leaving barely one out of every four rupees available to directly fund welfare programmes, education and healthcare.
Consequently, the state’s capital expenditure has dropped to just 1.3% of GSDP, positioning Kerala among the lowest-investing states.
The situation, it says, is compounded by inherited payment arrears totaling Rs 48,733 crore, including Rs 21,670 crore in unpaid Dearness Allowance (DA) to state employees and Rs 14,387 crore in Dearness Relief (DR) owed to elderly pensioners.
The White Paper says that the State’s treasury is under severe stress, a process that began accelerating well before the disruption of the COVID pandemic.
The treasury’s closing balance plummeted from a positive Rs 1,950 crore in 2016-17 to a negative balance of Rs 530 crore by 2019-20, as operational spending consistently outpaced domestic revenue generation. The treasury did show brief signs of stability between 2020 and 2023, but this was basically on account of the temporary pandemic lifelines from the Centre — including Rs 48,388 crore in Revenue Deficit Grants and Rs 28,813 crore in GST compensation.
Now that the central government has done away with Revenue Deficit Grants and GST compensation, the state is faced with a sharp liquidity crunch.
The murky liquidity situation arose in fiscal 2024-25 and that saw the treasury run a negative balance for 10 out of 12 months. To keep daily administrative machinery moving, Kerala was forced to rely on the Reserve Bank of India’s emergency Ways and Means Advances for 262 days and slipped into overdraft for 84 days.
The state exchequer did show a positive fiscal year-end balance of Rs 2,076 crore in March, but this was only on account of a massive Rs 12,744 crore market borrowing in March alone—a practice the report terms “back-loading" to create an optical illusion of health.
The White Paper says that there has been a severe accumulation of losses across State Public Sector Enterprises (PSEs).
Total cumulative losses have ballooned from Rs 31,571 crore in 2021-22 to Rs 78,851 crore, driven predominantly by heavy deficits in core public utilities like the Kerala State Road Transport Corporation (KSRTC) and the Kerala Water Authority (KWA).
Simultaneously, the Kerala Infrastructure Investment Fund Board (KIIFB) faces an outstanding loan liability of approximately Rs 21,000 crore, alongside an additional Rs 35,000 crore in approved projects that currently lack an independent funding source.
The White Paper is particularly critical of the former government’s reliance on the Kerala Infrastructure Investment Fund Board (KIIFB), an SPV under the Finance Department, to raise funds to finance infrastructure projects.
While the KIIFB had some good aspects to its functioning, its existence had become untenable once the Central government brought its off-budget borrowings under the ambit of its debt ceiling.
The White Paper says that the government should curb KIIFB’s practice of raising funds through high-cost market instruments such as Masala Bonds and place KIIFB’s future projects under the budgetary oversight of the Finance Department.
