Kerala’s new government is grappling with a significant financial burden, as the state is burdened with outstanding liabilities amounting to Rs 5.07 lakh crore. The state’s committed expenditure already consumes 77% of its total revenue receipts, with interest payments alone devouring nearly 21% of revenue.
Presented by Chief Minister V.D. Satheesan, the Status Report on Kerala’s fiscal health highlights the deepening fiscal stress caused by various factors such as declining central transfers, the cessation of GST compensation and revenue deficit grants, sluggish private investment growth, and escalating expenditure commitments.
The White Paper underscores a worrying trend where Kerala has deviated from the traditional practice of borrowing for investments that spur growth. Despite having one of the highest fiscal deficits, the state’s capital expenditure remains meager at just 1.3% of the Gross State Domestic Product (GSDP).
Kerala is currently facing an immediate challenge concerning its treasury position, as revenue inflows fall short of expenditures, leading to heavy reliance on Reserve Bank of India borrowing mechanisms. The state has been resorting to Ways and Means Advances extensively, with recent years showing a worsening trend.
The government has also inherited a substantial burden of accumulated payment arrears amounting to Rs 48,733 crore, including pending Dearness Allowance arrears, Dearness Relief arrears, and dues to banks and contractors through bill discounting. The report notes that this figure is almost equivalent to Kerala’s net annual borrowing.
