Tamil Nadu and Kerala White Papers: Why fiscal management is tight for state governments

In Kerala, since the 1960s, high levels of state government spending on social sectors have been a central component of public action that drives social progress. | Photo credit: Nirmal Harindran

Kerala and Tamil Nadu it is among the most socially and economically advanced states of India. Still, the finances of both governments, like most other states, are under pressure. White papers released recently by both governments described their outstanding debt as alarming. National debt is often maligned as a result of fiscal mismanagement. But in reality, this may reflect a mismatch between developmental aspirations and the limited fiscal capacity of state governments.

Debts build up over the years with deficits created when government spending exceeds its tax and other revenues. In India, while the power to raise taxes rests largely with the Union government, a larger share of total government expenditure is borne by the state governments. Most state government spending goes to social sectors such as health and education and economic sectors such as agriculture and irrigation, all of which have a direct impact on people’s lives and livelihoods. In Kerala, since the 1960s, high levels of state government spending on social sectors have been a central component of public action that drives social progress. Compared to the corresponding average for all Indian states, state government welfare expenditure per capita was higher in Kerala and Tamil Nadu (by 30% and 20%, respectively). In contrast, it was significantly lower (by 35% and 40%) in Bihar and Uttar Pradesh (for 2020-23, based on analysis based on State Finances: A Study of Budgets, Reserve Bank of India).

Published – 1 July 2026 07:30 IST