Kerala's Fiscal Report: Debt Concerns and Counterarguments
On June 4, Kerala's new UDF government tabled a 195-page fiscal status report in the Assembly. The report raises alarms over the state's debt levels, revenue expenditure, and sustainability of welfare schemes. However, critics argue the report overlooks key factors such as the impact of the COVID-19 pandemic and Union-State fiscal imbalances.
The report states that Kerala's outstanding liabilities have risen, with the debt-to-GSDP ratio reaching 38.51% in 2021-22. But according to estimates from the Comptroller and Auditor General (CAG), the ratio has since stabilized and is projected to fall to 33.61% by 2025-26. Critics note that the Domar Gap—the difference between the growth rate and interest rate—remains positive, suggesting debt is sustainable.
The report also criticizes high revenue expenditure, attributing it to welfare programs and salaries of public workers. However, supporters of the previous LDF government argue that these expenditures are investments in human capital, pointing to Kerala's achievements in education and healthcare.
On capital expenditure, the report claims it is inadequate. Yet data shows that Kerala increased its share of capital spending over the past decade, partly through local governments and special purpose vehicles (SPVs) that were excluded from the report's analysis.
Regarding public sector units (PSUs), the report recommends disinvestment and restructuring. But the number of profit-making PSUs increased from 39 to 57 between 2015-16 and 2024-25, with turnover rising by over ₹5,000 crore.
The report is silent on the broader context of Union-State fiscal relations and constraints under the GST regime, which critics argue are central to understanding Kerala's fiscal position. The report's narrow focus on state-level policies has led to questions about its neutrality.
