THIRUVANANTHAPURAM: The financial position of the state is passing through an extremely critical phase, according to the newly released government (White Paper). Presented in the Legislative Assembly by the Finance Minister under the new government that assumed power in Kerala in 2026, this crucial report underscores that the state’s total debt liability has spiked to ₹5.07 lakh crore, while capital expenditure for development remains among the lowest in the country.
The white paper reveals that a staggering 77% of the state’s revenue is being consumed by mandatory expenditures such as salaries, pensions, and interest payments. Furthermore, the outstanding loan liability of ₹21,000 crore under KIIFB and an accumulated loss of ₹78,851 crore in Public Sector Undertakings (PSUs) have dealt a severe blow to the state’s economy. The details of this report and the unfolding economic crisis have triggered intense debates across various social media platforms.
Key Findings of the White Paper:
- Total Debt Liability: Kerala’s total debt burden has reached an alarming ₹5.07 lakh crore.
- Mandatory Expenditures: 77% of the state’s revenue goes into committed expenditures like salaries, pensions, and interest.
- Capital Expenditure: Spending on developmental projects (Capital Expenditure) remains one of the lowest in the nation.
- Treasury Crisis: The treasury crisis continues to be acute; in 2025, Kerala relied on the Reserve Bank’s Ways and Means Advances for 262 days and Overdraft for 84 days.
- Pending Dues: The new government has inherited pending liabilities worth ₹48,733 crore, including DA/DR dues for government employees and pensioners.
- KIIFB Liabilities: KIIFB has an outstanding loan liability of approximately ₹21,000 crore, which the report points out is effectively part of the state’s direct debt.
- Public Sector Losses: The total accumulated losses of Public Sector Enterprises (PSEs) rose to ₹78,851 crore, driven largely by major entities like KSRTC and KWA.
- Reduced Plan Outlay: Developmental fund allocations for Scheduled Castes (SC), Scheduled Tribes (ST), backward classes, and minorities have decreased significantly over the past years.
- Economic Stress: Lower-than-expected state tax revenue and reduced central assistance have further compounded the fiscal stress.
Detailed Breakdown of the Treasury Stress:
- Pre-COVID Scenario: The fiscal strain began long before the pandemic. The treasury closing balance, which stood at a positive ₹1,950 crore in 2016-17, plunged into a negative balance of ₹530 crore by 2019-20, primarily because expenditures grew much faster than revenue generation.
- The COVID-19 Illusion: The seemingly improved cash flow during the pandemic years was not a reflection of real economic growth. The treasury balance between 2020-21 and 2022-23 was artificially propped up by Central Government Revenue Deficit Grants (₹48,388 crore), GST compensation grants (₹28,813 crore), and heavy market borrowings. During this period, the state received a total of ₹77,201 crore in central assistance alongside ₹86,405 crore in market loans.
- The 2024-25 Downturn: The situation worsened drastically in 2024-25. With the cessation of GST compensation and Revenue Deficit Grants, the treasury crisis peaked. For 10 out of the 12 months in the fiscal year 2024-25, the treasury operated in a negative balance, forcing the state to lean daily on the RBI’s Ways and Means Advances (WMA) and Overdraft (OD) facilities.
- Misleading Year-End Figures: The positive closing balance of ₹2,076 crore recorded at the end of fiscal year 2024-25 was deceptive. It was achieved only because the state availed a massive market loan of ₹12,744 crore (accounting for 24% of the entire year’s borrowing) in the month of March alone. Monthly data from 2021-22 to 2025-26 confirms that the state was trapped in a perpetual liquidity crunch, managed barely through continuous borrowings and RBI interventions.
The white paper warns that temporary relief measures during the pandemic masked structural flaws without providing long-term remedies. While noting that the state’s financial health is in deep distress, the report suggests that sustainable recovery lies in promoting private investments, industrial growth, employment generation, and infrastructure development. It concludes with a sobering reminder that Kerala cannot achieve its development goals without implementing strict fiscal discipline and total financial transparency.
Story Summary: The newly formed Kerala government in 2026 has released a financial white paper revealing a critical debt crisis of 5.07 lakh crore rupees. The report highlights severe treasury stress, dependency on central grants/RBI advances, and low capital expenditure, urging immediate financial discipline and private investments to revive the economy.
For more details download PDF from Download Kerala Financial Crisis White Paper 2026 from http://www.niyamasabha.org/ : Malayalam / English)
