Listen to this article:

“Kerala’s Fiscal Health: A Status Report”, tabled in the assembly on June 4, is the newly elected United Democratic Front (UDF) government’s first formal assessment of the state’s finances. Prepared by a committee chaired by former cabinet secretary K.M. Chandrasekhar and the economists D. Narayana and C. Veeramani as members, the report seeks to establish a credible fiscal baseline and build a case for policy reform.

While it presents itself as a diagnostic exercise, it carries an evident political purpose – attributing the state’s current fiscal difficulties to decisions made by the preceding Left Democratic Front (LDF) administration. The LDF leaders, meanwhile, accuse the UDF government of sidestepping the Union governments’ fiscal policy discrimination, thereby legitimising the neoliberal reforms underway in India.

The report’s main claim is that Kerala faces a structural fiscal problem rather than a temporary imbalance. Unlike a cyclical deficit, which corrects itself as revenues recover, a structural deficit reflects a fundamental mismatch between a government’s commitments and its capacity to meet them. The supporting evidence is significant. Outstanding liabilities stand at approximately Rs 5.07 lakh crore, around 35.5% of GSDP.

Source: “Kerala’s Fiscal Health: A Status Report“

More revealing is their composition: salaries, pensions, retirement benefits and interest payments consume nearly 80% of revenue receipts, leaving barely a fifth to cover health, education, agriculture, local governments and capital works. Capital expenditure, at roughly 1.3% of GSDP, is less than half the national average, reflecting a severe compression of productive public investment.

Also read: Why India’s States Are Spending More but Building Less

The report says treasury management has deteriorated sharply. In 2024–25, the state recorded negative balances in ten of twelve months, forcing unusually frequent recourse to the Reserve Bank of India’s Ways and Means Advances and overdraft facilities. Moreover, deferred liabilities exceeding Rs 48,000 crore have built up through unpaid dearness allowance arrears and related obligations – legally binding commitments that remain unsettled due to the absence of funds. Together, these indicators point to a state whose fiscal condition has moved well beyond routine stress.

The question of fiscal conduct

The committee stops short of attributing fiscal deterioration to deliberate wrongdoing – the report is not a forensic investigation and the language of reporting corruption is absent. Its criticisms of budget-making practice under the previous administration are, nonetheless, pointed. Revenue projections, it finds, consistently exceeded actual collections, while expenditure commitments were structured to move obligations off the main budget.

The use of institutions such as Kerala Infrastructure Investment Fund Board (KIIFB)to accommodate spending that might otherwise have breached borrowing limits is characterised as fiscal concealment – the report’s own phrase is “financial sleight of hand”.

The major concern is a sustained violation of the principle that borrowing should generate asset creation. When a government borrows........

© The Wire