Kerala's finances are under severe strain, with outstanding liabilities touching ₹5.07 lakh crore and pending arrears of ₹48,733 crore inherited from the previous administration, according to a fiscal status report tabled in the Assembly on Thursday.
The report, titled Kerala's Fiscal Health: A Status Report, paints a stark picture of the state's financial position and highlights the challenges confronting the newly elected government. Prepared by a committee headed by former cabinet secretary KM Chandrasekhar, the document was presented by Chief Minister and Finance Minister VD Satheesan as part of what the government described as an exercise in fiscal transparency.
According to the report, Kerala's arrears are almost equal to its annual market borrowings. The pending liabilities include ₹21,670 crore in unpaid Dearness Allowance to government employees, ₹14,387 crore in Dearness Relief arrears to pensioners and ₹3,431 crore owed to banks and contractors.
The report says the state's debt burden has reached levels that significantly constrain its ability to undertake development spending. Kerala has consistently ranked among the most fiscally stressed states in various national assessments because of its high debt levels and recurring revenue deficits.
One of the most striking findings is that committed expenditure — salaries, pensions and interest payments — now consumes 77 percent of the state's total revenue receipts.
Interest payments alone account for 20.09 percent of revenue receipts, limiting the government's fiscal flexibility. As a result, Kerala has little room for productive investment after meeting its routine obligations.
The report notes that capital expenditure has fallen to just 1.3 percent of Gross State Domestic Product (GSDP), placing Kerala among the lowest-spending states in the country in terms of capital investment. Economists generally view capital expenditure as crucial for creating infrastructure, generating employment and supporting long-term economic growth.
The report also raises questions about the functioning of the Kerala Infrastructure Investment Fund Board (KIIFB), which played a central role in financing infrastructure projects during the previous Left Democratic Front government.
According to the document, KIIFB spending was heavily influenced by political priorities, with nearly 20 percent of its total expenditure concentrated in Kannur district, traditionally regarded as a stronghold of the CPM. The report suggests that project allocation did not always reflect balanced regional development priorities.
The state's public sector enterprises have emerged as another major concern. Accumulated losses of 132 active state-owned enterprises surged from ₹31,571 crore in 2021-22 to ₹78,851 crore in 2024-25, reflecting worsening financial performance across several entities.
Three organisations — KSRTC, KSSPL and KWA — accounted for 72 percent of the total losses recorded by public sector enterprises during the last financial year.
The report argues that Kerala's fiscal challenges stem from a combination of rising debt, growing committed expenditure, weak capital spending and mounting losses in public sector undertakings.
While the state continues to maintain strong social indicators and a diversified economy, the document warns that restoring fiscal health will require tighter expenditure management, improved revenue mobilisation and a greater focus on productive investment.
