SUMMARY:
KERALA’S FISCAL HEALTH – A STATUS REPORT (2026)
This report presents an assessment of Kerala’s
fiscal position at the beginning of the new government’s term in
2026. It argues that Kerala’s social achievements remain strong, but
the State’s financial capacity to sustain and expand them is under
severe strain.
Key Findings
• Outstanding liabilities are estimated at about ₹5.07 lakh crore,
around 35.5% of GSDP.
• Committed expenditure (salaries, pensions and interest payments)
consumes about 77% of revenue receipts, leaving limited fiscal space
for development spending.
• Interest payments account for roughly 21% of revenue receipts.
• Capital expenditure is only about 1.3% of GSDP, among the lowest
levels among major Indian states.
• Borrowings have increasingly financed current expenditure and debt
servicing rather than productive investment.
Treasury and Cash Management
• Kerala has experienced persistent cash-flow stress and frequent
dependence on RBI liquidity facilities such as Ways and Means
Advances and Overdrafts.
• The situation worsened after the end of GST compensation and
Revenue Deficit Grants from the Union Government.
• The new government inherited unpaid liabilities and arrears
estimated at nearly ₹48,733 crore, including dearness allowance,
dearness relief, contractor payments and other obligations.
Budget Management
• The report highlights repeated deviations between budget estimates
and actual outcomes.
• Revenue projections have often proved overly optimistic.
• Revenue, fiscal and primary deficits have remained persistently
high.
• Central transfers for 2026–27 are expected to be substantially
lower than assumed in earlier budget estimates.
KIIFB (Kerala Infrastructure Investment Fund Board)
• KIIFB is described as a parallel fiscal structure that created
significant off-budget liabilities.
• Outstanding KIIFB liabilities and future project commitments
impose major obligations on the State.
• The report argues that KIIFB borrowing is effectively State
borrowing and often costs more than direct government borrowing.
• Governance, accountability and project-prioritisation concerns are
identified.
Public Sector Enterprises
• Kerala has one of the largest public-sector enterprise networks
among Indian states.
• Many enterprises are loss-making and dependent on budgetary
support.
• Accumulated losses have increased sharply in recent years.
• The report recommends restructuring, improved efficiency, and
consideration of disinvestment or closure of non-strategic
enterprises.
Development Expenditure
• Fiscal stress has reduced development spending and capital
investment.
• Allocations for Scheduled Castes, Scheduled Tribes, minorities and
other vulnerable groups have declined as a share of total plan
expenditure.
• Social-sector and local-government development spending have faced
compression.
Structural Challenges
• High debt and committed expenditure.
• Weak revenue growth, especially in GST collections.
• Reduced fiscal support from the Union Government.
• Dependence on remittances and relatively weak private investment.
• High unemployment among educated youth.
Main Recommendations
• Strengthen fiscal discipline and budget credibility.
• Improve revenue mobilisation.
• Reform or restructure loss-making public enterprises.
• Integrate off-budget liabilities into transparent fiscal
management.
• Prioritise productive capital expenditure.
• Encourage private, cooperative and local-government-led
investment.
• Reform regulatory, land and labour frameworks to promote growth
and employment.
Overall Conclusion
The report concludes that Kerala faces serious but manageable fiscal
challenges. Long-term recovery requires greater transparency,
structural reforms, improved investment, stronger economic growth,
and more disciplined public financial management. The central
message is that Kerala’s future development goals can be achieved
only if fiscal sustainability is restored.
For further reading:
Kerala's-whitepaper-on-finances-a-critique/
Kerala's
Fiscal Health Report Sparks Debate- Infographic