KERALA 'S FISCAL HEALTH STATUS: FEW OBSERVATIONS

 The White Paper on Fiscal strength of Kerala placed in the state legislature on June 4th 2026 prepared by  an expert  team chaired by former cabinet Secretary KM Chandrasekhar  revealed that on the fiscal front Kerala currently faces a large burden of outstanding liabilities of ₹ 5.07 lakh crores estimated to be 35.5%" of Gross State Domestic Product,In contrast to the national all  state average is 29.2% .Most importantly Kerala's  committed expenditure on salaries, wages,and pensions estimated to take a lions share of 77.6% of revenue reciepts in 2025-26 as  against all state's average of 46.4% for the country. Accordingly an estimated 1.3% of GSDP is  only available for essential capital  expenditure.

The Paper recommended to Revamp the KIIFBI Act 2016 and suggested to be brought under the Budgetary control of the administrative departments concerned and the Finance Department. The transition of KIIFBI should be restructured The Kerala infrastructure investment fund  board (KIIFB) as a body corporate was established by KIIFB Act 1999 and it facilitated infrastructure development funding since 11th November 1999.After reviewing infrastructure requirements of vital sectors and identifying the critical gaps KIIFB could  join hands with state/ Central public sector agencies as special purpose vehicles to support the Administrative Departments in developing infrastructure. KIIFB has been mobilizing and channeling funds  for facilitating planned hassle free sustainable development of both physical and social infrastructure including major land acquisition needs integral to development ensuring well-being and prosperity, using financial instruments approved by Securities and exchange board of India SEBI and  Reserve Bank of India RBI. Despite  describing the KIIFB as a bold institutional innovation the white Paper on Kerala's fiscal health argue that the institutions original purpose has been fundamentally  under mined and hence the institution required significant overhauling and restructuring.According to the White Paper the State Government has been contributing an average of ₹ 3000 crores every year to KIIFB since 2017-18 and as on March 31st 2026 total inflows to KIIFB stood at₹74174 crores comprising of Government contribution of ₹26497 crores, borrowings ₹42053 crores,project repayments of ₹3700 crores and other income of ₹1920 crores.The White Paper also identified diversion of 50% of Motor vehicles Tax revenues to KIIFB which is the single largest source of Support by Government,which alone amounted to ₹ 17593.57 crores by 2025-26. While KIIFB currently holds a fund balance of about ₹11000 crores the report estimated around ₹21000 crores in loan liabilities accrued to be serviced by the state  Government.

Critics observed that KIIFB is responsible for exorbitant debt obligations, higher interest and revenue drain due  to diversion of half of total Motor vehicles Tax. Further it is also handicapped  by financial mismanagement, structural irregularities and political bias in executing projects .The  skewed project allocation largely benefited districts including Kannur,Thiruvananthapuram and Ernakulam despite the fact that hilly districts of Waynad and Idukki are constrained with basic infrastructure facilities. 

  The status paper seeks to Revamp and  improve loss making public sector enterprises by reforming them, particularly Kerala State Electricity Board (KSEB).Kerala State Road Transport Corpration (KSRTC), and Kerala Water Authority (KWA) .According to K M Chandrasekhar these three utilities accounts for very large share of the aggregate losses of PSEs in Kerala.Moreover  th poor performance of many public utilities can have spillover effects throughout the economy of the  state. The Status Report  also recommended a merger of the Kerala State Beverages Corporation(Bevco) and the Kerala Civil Supplies Corporation(Supplyco)  into a single Corporation " With separate divisions for liquor distribution and civil supplies/Provisions"

FISCAL CONSTRAINTS 

Sound public policy rests on the clarity and understanding of its financial status.In Kerala successive Governments had to make difficult choices under multiple constraints which include sustained gap in revenue framework , gradual decline in central transfers and tax devolution. It has been observed that both ccoalition Governments in order to accommodate different pressure groups not only increased numbers of Ministers' personal staff with perks but also appointed some  as Managing Directors of different corporations and as members of State Public Service Commission despite numbers recruited directly through due process  were  dwindling every year. According to the ' Domar stability condition a fundamental macro economic rule used to determine whether the Govt's public debt is sustainable - it states that the nominal growth rate of the economy must be greater than nominal interest rate on public debt'.The  share of revenue expenditure in Kerala towards Salaries, pensions and interest payments are 77.6 % as against national average of 46% .It may be noted here that eventhough during 2020-23 Kerala recieved ₹48388 .crores as Revenue Deficit Grant and ₹28813(total ₹77213 crores  ) which was stopped later - still during that period also Kerala borrowed under Ways and Means advance from RBI. Obviously Kerala is facing from a structural problem which can be addressed through only industrial deepening and increasing manufacturing base.States like Tamil Nadu are very successful to utilise the post  reform period for industrial deepening, and consequently reducing the interest burden on public debt.

FEW OBSERVATIONS 

 The main findings of the report focus  the need for sustained fiscal consolidation, Prudent expenditure management, enhanced revenue mobilization and institutional reforms.Eventhough KIIFB as an alternative mechanism to provide infrastructure facilities in the state worked well initially but bureaucratic dominance and lack of transparency in awarding projects,increasing costs etc  became detrimental to growth. Eversince the publication of the United Nations sponsored study " poverty unemployment and Development Policy: A cas study of Selected issues with Particular reference to KERALA "by Centre for Development Studies ,Trivandrum the Kerala economy became major focus of attention and discussion by academia, development economists and policy makers across the world. One of their major focus was that how without corresponding economic growth Kerala was able to achieve social, educational and health development.0 In terms of Human Development Index (HDI) Kerala continue to be on the top rank among Indian states with 0.782 highest value even equal to many developed countries of the world.However there are many disturbing social factors like high suicidal rate,motor vehicle accident deaths,domestic violence and high morbidity rate in the health sector etc.It may not be an exaggeration to say that like long que visible  in front of the Bevco outlet similar que is also  visible in front of different family courts  in Kerala which require special attention. 

Inorder to achieve high  economic growth Kerala requires a knowledge driven sustainable economy devoid of fiscal and environmental vulnerabilities.Such an economy can utilize Kerala's high literacy, education and digital infrastructure to faster sectors like AI, IT, bio technology green energy, Healthcare,leisure,wildlife  and pilgrimage tourism etc.Loss making  non strategic public sector enterprises PSEs may be considered for disinvestment privatisation or even closure if found non viable.State can encourage Non resident Keralites to promote business ventures, Startups and MSME s etc which are expected to generate more employment opportunities. In the changed global scenario the youth organizations should also change their strategy from destroying public  property  during protest  to  highlight    the urgency of the cause through debates and discussions in media and public. When ideologies and governance itself is changed across the world we should be able to absorb the dynamic spirit of it for  our own interest.