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Painting a bleak picture of State finances, a White Paper tabled in the Kerala Legislative Assembly on Thursday by Chief Minister V.D. Satheesan observed that “behind Kerala’s social achievements lies a fiscal structure that is under serious and growing strain.”
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On the fiscal front, Kerala currently faces a “large burden” of outstanding liabilities (₹5.07 lakh crore), committed expenditures (77.6% of Total Revenue Receipts (TRR)), and interest payments (20.9% of TRR), the document, ‘Kerala’s Fiscal Health: A Status Report,’ a 195-page document drafted by a committee headed by former Union Cabinet Secretary K.M. Chandrasekhar, noted.
Citing the findings of the panel, Mr. Satheesan, who also handles the finance portfolio, said Kerala faces a shortfall of approximately ₹20,500 crore in Central transfers in 2026-27 due to “wild” guesswork made by the previous Left Democratic Front (LDF) government in the Budget estimates. “The fiscal situation is very vulnerable. Outstanding liabilities amount to 35.5% of the Gross State Domestic Product (GSDP),” the Chief Minister said.
Committed expenditure — salaries and wages, pensions, and interest payments — consumed 77.6% of the revenue receipts in 2025-26, against an all-States average of 46.4%, according to the White Paper. “For every ₹100 Kerala receives in revenue, ₹77 is already committed, leaving only ₹23 for schools, hospitals, roads, welfare, capital investment, and support to local governments,” it said.
Heavy private investment
Several recommendations in the White Paper entail major departures from existing government policy. Among other things, it recommends the creation of favourable conditions for “heavy private sector investment,” given the acute shortage of resources at the State level. The policy shifts are especially evident in the case of the Kerala Infrastructure Investment Fund Board (KIIFB), loss-making public sector enterprises (PSE) and the State’s power sector where it has advised private-sector investment and Central public sector investment.
KIIFB, described as a “parallel governance structure” in the document, has been lined up for a comprehensive revamp. The White Paper recommends an amendment of the KIIFB Act, 2016, and a forensic audit of KIIFB accounts. The recommendations also require KIIFB to be brought under the budgetary control and Comptroller and Auditor General (CAG) audit.
The White Paper calls for urgent reforms in the Kerala State Electricity Board (KSEB), the Kerala State Transport Corporation (KSRTC), and the Kerala Water Authority (KWA). It also recommends a merger of the Kerala State Beverages Corporation (Bevco) and the Kerala Civil Supplies Corporation (Supplyco) into a single entity.
For the way forward, the White Paper recommends a a greater role of the co-operative sector investments in development and job creation. It also urges the government to make room for heavy investment by the Central public sector.
Observing that the Budget Estimates for 2026-27 had anticipated ₹20,500 crore more than the 16th Finance Commission eventually provided for Kerala, the document noted that the State may require “aggressive mobilisation of own revenue and prioritisation of expenditure” to bridge this gap.
In the case of salaries, pensions and retirement, it was “time for hard political decisions,” the document said, pointing to the arguments for raising the retirement age and having pay revisions only once in 10 years.
The State’s capital expenditure at 1.3% of the GSDP is “one of the lowest” among Indian States despite running one of the highest fiscal deficits, it said. “Kerala has been violating the basic tenet of ‘borrow to invest, growth will repay’ in a big way, weakening the growth generating capacity,” the White Paper said.
Heated debate
The tabling of the White Paper has intensified the heated debate between the ruling Congress-led United Democratic Front (UDF) and the CPI(M)-led Opposition Left Democratic Front (LDF) on the fiscal health of the State. Significantly, the White Paper also comes ahead of the presentation of the Revised State Budget on June 19.
The UDF government had announced plans to publish the White Paper soon after assuming power in May. Apart from Mr. Chandrasekhar, economist and former Director of the Gulati Institute of Finance and Taxation D. Narayana and Professor and Director of the Centre for Development Studies C. Veeramani were the members of the committee tasked with drafting it.
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