Thiruvananthapuram, June 4: Kerala’s new government faces a significant financial challenge, inheriting a debt of ₹5.07 lakh crore, as revealed in the ‘White Paper‘ on the state’s finances presented in the assembly on Thursday. According to the report, 77% of the total revenue receipts are consumed by mandatory expenses, with interest payments alone accounting for nearly 21% of the revenue.
Chief Minister V.D. Satishan stated that the report aims to provide an evidence-based assessment of the financial situation and upcoming challenges, rather than merely criticizing the past.
The report highlights that Kerala’s financial crisis has deepened due to reduced central funding, the cessation of GST compensation and revenue deficit grants, weak growth in private investment, and rising expenditure commitments.
The White Paper warns that Kerala has deviated from the fundamental principle of borrowing for investment and repaying through growth. Despite having the highest fiscal deficit in the country, the state’s capital expenditure is the lowest, constituting only 1.3% of the Gross State Domestic Product (GSDP).
The immediate challenge for the government is the state of the treasury. When revenue inflow falls short of expenditures, Kerala becomes heavily reliant on borrowing methods from the Reserve Bank of India.
The report indicates that since 2015, the state has depended on ‘Ways and Means Advances’ almost every year. The situation worsened in recent years; in 2025, Kerala utilized these advances for 262 days and was overdrawn for 84 days. During the COVID years of 2020 and 2021, the state relied on such temporary loans for 234 and 195 days, respectively.
Additionally, the White Paper reveals that the government inherited outstanding payments totaling ₹48,733 crore, including ₹21,670 crore in pending Dearness Allowance (DA), ₹14,387 crore in pending Dearness Relief (DR), and ₹3,431 crore owed to banks and contractors through bill discounting.
The report states, “This is nearly equivalent to Kerala’s net annual borrowing.” A major concern raised in the report is the burden created by public sector enterprises (PSEs). Kerala has the highest number of government-owned enterprises in the country, most of which are running at a loss. The cumulative loss of these enterprises rose from ₹31,571 crore in 2021-22 to ₹78,851 crore in 2024-25.
The report notes that in 2024-25, 72% of the total net loss of PSEs was attributed to KSRTC, KSSPL, and the Kerala Water Authority.
Concerns were also raised regarding institutions like KIIFB. While these institutions have aided in creating infrastructure assets, they have also contributed to additional liabilities and increased pressure on future revenue flows.
The fiscal situation has become more complex due to poor GST revenue performance, which remains below the national average, and a significant decline in assistance from the central government over the past two years.
The report suggests several reforms, including improving revenue generation methods, reducing operational inefficiencies in state-run enterprises, and shifting from production-based subsidies to consumption-based assistance to ensure welfare schemes benefit the rightful recipients.
This White Paper comes at a time when the government faces the challenge of balancing welfare promises with fiscal reforms while meeting the expectations of a public that voted for better development and progress.
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