The Comptroller and Auditor General (CAG) has flagged the transfer of ₹262.06 crore from Kerala's Chief Minister's Distress Relief Fund (CMDRF) to the Consolidated Fund as irregular, tabling its 2024-25 economic review report in the Kerala Assembly on Tuesday, 23 June. The audit body found that the transfer had the effect of artificially reducing the state's revenue deficit and fiscal deficit figures, raising pointed questions about financial management under the previous Pinarayi Vijayan government.

Key Findings of the CAG Report

The CAG report identified the CMDRF-to-Consolidated Fund transfer as procedurally irregular, with the audit body noting that the move distorted the state's headline deficit numbers. Beyond the CMDRF issue, the report highlighted that off-budget borrowings have reached ₹39,230 crore, while unsettled liabilities stand at ₹3,511 crore. The Kerala Infrastructure Investment Fund Board (KIIFB) and the state pension company were identified as major sources of mounting financial obligations.

Revenue Growth Lags Behind Expenditure

The audit found that while Kerala's Gross State Domestic Product (GSDP) growth improved from 9.30 per cent to 9.97 per cent, revenue receipts grew by a mere 0.30 per cent — a sharp mismatch. Expenditure, meanwhile, rose by 8.97 per cent, and Central assistance to the state declined by 42 per cent. Nearly 64.40 per cent of revenue expenditure and around 80 per cent of revenue receipts are being absorbed by salaries and related benefits, leaving limited room for development spending.

Political Flashpoint in the Assembly

The findings are set to intensify the political confrontation between Leader of Opposition Pinarayi Vijayan, who headed the previous government, and incumbent Chief Minister V.D. Satheesan, with the Assembly currently in session. The CAG observations align with the direction already signalled in Satheesan's White Paper on state finances and the budget, both of which flagged KIIFB for a major overhaul. Probes into KIIFB's functioning over the past decade are reportedly being considered.

What the Borrowing Burden Means

Critics argue that Kerala's heavy reliance on off-budget borrowings — channelled through entities like KIIFB — has obscured the true scale of the state's fiscal stress. The CAG's explicit quantification of ₹39,230 crore in such liabilities provides the Opposition with fresh ammunition to question the fiscal stewardship of the previous administration. This is not the first time the CAG has raised red flags about Kerala's borrowing strategy; the pattern of audit observations stretches back several years.

What Comes Next

The CAG report is expected to dominate Assembly proceedings in the coming days, with Opposition members likely to demand a detailed explanation of the CMDRF transfer. The Satheesan government's announced review of KIIFB's decade-long operations will be closely watched as a signal of how far the new administration intends to push accountability on inherited fiscal liabilities.