Thiruvananthapuram: Kerala’s new government has inherited a severe financial challenge, with the state facing outstanding liabilities of Rs 5.07 lakh crore, committed expenditure eating up 77 per cent of total revenue receipts, and interest payments alone consuming nearly 21 per cent of revenue, according to the White Paper on the state’s finances tabled in the Assembly Thursday.
The Status Report on Kerala’s fiscal health, presented by Chief Minister V.D. Satheesan, said the objective was not to revisit the past with criticism but to present an evidence-based assessment of the financial position and the challenges ahead.
The report pointed out that Kerala’s fiscal stress has deepened due to declining central transfers, the end of GST compensation and revenue deficit grants, weak growth in private investment, and rising expenditure commitments.
The White Paper warned that Kerala has moved away from the basic principle of borrowing to invest and allow growth to repay, with capital expenditure remaining among the lowest in the country at just 1.3 per cent of the Gross State Domestic Product (GSDP), despite the state recording one of the highest fiscal deficits.
The government’s immediate challenge is the treasury position.
When revenue inflows fall short of expenditure, Kerala has been forced to depend heavily on Reserve Bank of India borrowing mechanisms.
The report noted that the state has been relying on Ways and Means Advances almost every year since 2015.
The situation worsened in recent years, with Kerala availing Ways and Means Advances for 262 days in 2025 and remaining on overdraft for 84 days.
During the Covid years of 2020 and 2021, the state had depended on such temporary borrowings for 234 and 195 days, respectively.
The White Paper also highlighted that the government has inherited accumulated payment arrears of Rs 48,733 crore, including Rs 21,670 crore in pending Dearness Allowance arrears, Rs 14,387 crore in Dearness Relief arrears and Rs 3,431 crore owed to banks and contractors through bill discounting.
“This is almost equal to Kerala’s net annual borrowing,” the report observed.
A major concern raised in the report is the burden created by Public Sector Enterprises (PSEs).
Kerala has one of the largest numbers of state-owned enterprises in the country, with the majority running into losses.
The accumulated losses of these enterprises increased from Rs 31,571 crore in 2021-22 to Rs 78,851 crore in 2024-25.
The report noted that KSRTC, KSSPL and Kerala Water Authority together accounted for 72 per cent of the net losses among PSEs in 2024-25
The White Paper also flagged concerns over institutions such as KIIFB, stating that while they helped create infrastructure assets, they have also contributed to additional liabilities and pressure on future revenue flows.
The fiscal situation has also been complicated by poor GST revenue performance, which remains below the national average, and a sharp fall in central support over the past two years.
The report suggested reforms, including improving revenue mobilisation, reducing operational inefficiencies in state-run enterprises and shifting from production-based subsidies to consumption-based support to ensure welfare benefits reach deserving sections.
The White Paper comes at a time when the government faces the challenge of balancing welfare commitments with fiscal correction, while meeting the expectations of a population that voted for improved growth and development.
