Kerala's new government has inherited outstanding liabilities of ₹5.07 lakh crore, with committed expenditure consuming 77% of total revenue receipts and interest payments alone eating up nearly 21% of revenue, according to the White Paper on state finances tabled in the Assembly on Thursday, 4 June. The Status Report, presented by Chief Minister V.D. Satheesan in Thiruvananthapuram, framed itself as an evidence-based assessment rather than a political critique of the previous regime.

Key fiscal stress points

The report attributed Kerala's deepening fiscal strain to declining central transfers, the end of GST compensation and revenue deficit grants, weak private investment growth, and rising expenditure commitments. It warned that the state has drifted from the foundational principle of borrowing to invest in growth that repays itself.

Capital expenditure has remained among the lowest in the country at just 1.3% of Gross State Domestic Product (GSDP), even as Kerala records one of the highest fiscal deficits — a structural mismatch the White Paper flagged as unsustainable.

Treasury under chronic strain

Kerala has leaned heavily on Reserve Bank of India borrowing mechanisms to bridge revenue shortfalls. The report noted that the state has tapped Ways and Means Advances almost every year since 2015.

The strain intensified recently: Kerala availed Ways and Means Advances for 262 days in 2025 and remained on overdraft for 84 days. By comparison, even during the Covid-disrupted years, the state depended on such temporary borrowings for 234 days in 2020 and 195 days in 2021.

Payment arrears and PSE losses

The government has inherited accumulated payment arrears of ₹48,733 crore, including ₹21,670 crore in pending Dearness Allowance arrears, ₹14,387 crore in Dearness Relief arrears, and ₹3,431 crore owed to banks and contractors through bill discounting. 'This is almost equal to Kerala's net annual borrowing,' the report observed.

The burden from Public Sector Enterprises (PSEs) is equally stark. Accumulated losses ballooned from ₹31,571 crore in 2021-22 to ₹78,851 crore in 2024-25. KSRTC, KSSPL and the Kerala Water Authority together accounted for 72% of net PSE losses in 2024-25. The report also flagged KIIFB, noting that while it has helped create infrastructure assets, it has simultaneously added to liabilities and future revenue pressure.

Reforms recommended

The White Paper called for stronger revenue mobilisation, reduced operational inefficiencies in state-run enterprises, and a shift from production-based subsidies to consumption-based support to better target welfare. Poor GST revenue performance — still trailing the national average — and a sharp fall in central support over the past two years were cited as additional pressure points.

The government now faces the delicate task of balancing welfare commitments with fiscal correction, while addressing voter expectations for growth and development in the coming financial cycles.