Kerala Budget Sidesteps Committed Expenditure Despite White Paper Warnings

The United Democratic Front (UDF) government in Kerala presented its maiden budget on Thursday, following the release of a white paper that raised serious concerns about the state's rising debt and fiscal management. The white paper, titled 'Kerala's Fiscal Health — A Status Report', had strongly criticised the previous Left government for alleged fiscal mismanagement.

The budget projects the state's debt-to-GSDP ratio to decline marginally to 33.5% in 2026-27, from 34.87% in 2024-25. However, this reduction is not due to an absolute decrease in debt; total outstanding debt is expected to rise by 11.6%, from ₹4.89 lakh crore to ₹5.46 lakh crore. The improvement relies on optimistic assumptions, including nominal GSDP growth of 14.15% and revenue receipts growth of 23.8%.

A key concern highlighted in the white paper is Kerala's high 'committed expenditure' — spending on salaries, pensions, and interest payments — which accounts for nearly 78% of the state's revenue receipts, compared to the all-India average of 45.4%. The budget estimates this share at 72.14% for 2026-27, still the second-highest among major states, after Punjab.

Salaries and pensions alone are projected at ₹88,000 crore in 2026-27, about 52% of estimated revenue receipts. This leaves limited room for capital expenditure and contributes to revenue deficits. The white paper had described this as a 'structural problem' and called for 'hard political decisions', such as increasing the retirement age and limiting pay commission revisions to once every ten years.

Despite these warnings, the budget speech was silent on specific measures to reduce committed expenditure, except for a proposal to revamp the National Pension Scheme after reviewing the previous government's assured pension scheme. The silence may reflect the political difficulty of cutting spending on salaries and pensions, which have supported Kerala's strong human development indicators.

Economist R. Ramakumar cautioned against interpreting the figures solely as evidence of fiscal distress, noting that high spending on salaries and pensions also reflects the state's investment in public services. However, the budget's reluctance to address the structural issue raises questions about long-term fiscal sustainability.