The newly elected United Democratic Front (UDF) government in Kerala has tabled a comprehensive financial White Paper in the State Assembly, claiming it inherited a monumental debt burden of Rs 5.07 lakh crore. The 195-page document, titled "Kerala's Fiscal Health: A Status Report," was prepared by an expert committee led by former Cabinet Secretary K.M. Chandrasekhar and presented by Chief Minister and Finance Minister V.D. Satheesan.
Key Highlights of the White Paper
The White Paper paints a dark picture of the state's finances, emphasizing that it is not a political document but a basic roadmap for Kerala's future. According to the report, the state's outstanding liabilities amount to 35.5% of the Gross State Domestic Product (GSDP), significantly higher than the national state average of 29.2%.
Committed Expenditure and Capital Investment
As much as 77% of Kerala's total revenue receipts are consumed by committed, non-discretionary expenses such as salaries, pensions, and interest payments. This leaves barely one out of every four rupees available to directly fund welfare programs, education, and healthcare. Consequently, the state's capital expenditure has dropped to just 1.3% of GSDP, positioning Kerala among the lowest-investing states.
Payment Arrears and Treasury Stress
The situation 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 notes that the state's treasury has been under severe stress, a process that began accelerating well before the COVID-19 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.
Pandemic Relief and Liquidity Crunch
Brief stability between 2020 and 2023 was largely due to temporary pandemic lifelines from the Centre, including Rs 48,388 crore in Revenue Deficit Grants and Rs 28,813 crore in GST compensation. With the central government discontinuing these grants, the state faces a sharp liquidity crunch. In fiscal 2024-25, the treasury ran a negative balance for 10 out of 12 months. To keep the administrative machinery moving, Kerala relied on the Reserve Bank of India's emergency Ways and Means Advances for 262 days and slipped into overdraft for 84 days. The positive fiscal year-end balance of Rs 2,076 crore in March was only due to 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.
Losses in Public Sector Enterprises
The White Paper highlights 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 lack an independent funding source.
Criticism of KIIFB
The White Paper is particularly critical of the former government's reliance on KIIFB, a Special Purpose Vehicle under the Finance Department, to raise funds for infrastructure projects. While KIIFB had some positive aspects, its existence became untenable once the Central government brought its off-budget borrowings under the debt ceiling. The report recommends that the government curb KIIFB's practice of raising funds through high-cost market instruments such as Masala Bonds and place future projects under the budgetary oversight of the Finance Department.
