White paper puts Kerala’s liabilities at ₹5.07 crore, CM says fiscal structure under ‘severe’ pressure

A white paper tabled in the Kerala legislature by Chief Minister VD Satheesan on Thursday paints a bleak picture of the state’s finances, saying that “behind Kerala’s social achievements lies a fiscal structure that is under serious and growing pressure”.

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On the fiscal front, Kerala currently faces a “huge burden” of outstanding liabilities (₹5.07 crore), liabilities (77.6% of total revenue (TRR)) and interest payments (20.9% of TRR), Kerala’s Fiscal Health: A Status by the Status by Union Report, and document 1 Cabine committee leader KM Chandrasekhar noted.

Fiscal tightrope for state governments

Citing the panel’s findings, Mr Satheesan, who also holds the finance portfolio, said Kerala faces a central transfer shortfall of around ₹20,500 crore in 2026-27 due to “wild” estimates made by the previous Left Democratic Front (LDF) government in the budget estimates. “The fiscal situation is very vulnerable. The outstanding liabilities amount to 35.5% of the gross state product (GSDP),” the chief minister said.

Compulsory spending – salaries and wages, pensions and interest payments – consumed 77.6% of revenue in 2025-26, compared to a national average of 46.4%, the White Paper said. “For every ₹100 that Kerala receives, ₹77 is already allocated, leaving only ₹23 for schools, hospitals, roads, social security, capital investment and support to local governments,” he said.

Large private investment

Some of the recommendations in the White Paper contain major departures from existing government policy. Among other things, it recommends the creation of favorable conditions for “large private sector investments” given the acute lack of resources at the state level. Policy shifts are particularly evident in the Kerala Infrastructure Investment Fund Board (KIIFB), loss-making public sector enterprises (PSEs) and the state’s power sector, where he advised on private sector investment and central public sector investment.

The KIIFB, described in the document as a “parallel management structure”, was set for a comprehensive overhaul. The White Paper recommends an amendment to the KIIFB Act 2016 and a forensic audit of KIIFB accounts. The recommendations also require KIIFB to be subject to budgetary scrutiny and audit by the Comptroller and Auditor General (CAG).

The white paper calls for urgent reforms in Kerala State Electricity Board (KSEB), Kerala State Transport Corporation (KSRTC) and Kerala Water Authority (KWA). It also recommends the merger of Kerala State Beverages Corporation (Bevco) and Kerala Civil Supplies Corporation (Supplyco) into one entity.

To move forward, the White Paper recommends a greater role for cooperative sector investment in development and job creation. It also urges the government to create space for large investments by the central public sector.

With the 2026–27 budget estimates projecting ₹20,500 crore more than the 16th Finance Commission ultimately provided to Kerala, the paper noted that the state may require “aggressive mobilization of its own revenue and prioritization of expenditure” to bridge the gap.

On pay, pensions and retirement, it is “time for tough political decisions”, the document says, pointing to arguments for raising the retirement age and reviewing pay only once every 10 years.

State capital expenditure at 1.3% of GSDP is “among the lowest” among Indian states despite running one of the highest fiscal deficits. “Kerala is in gross violation of the basic principle of ‘borrow to invest, grow pays’, thereby undermining the ability to generate growth,” the White Paper said.

A heated debate

The presentation of the White Paper intensified the heated debate between the ruling Congress-led United Democratic Front (UDF) and the opposition Left Democratic Front (LDF) led by the CPI(M) over the state’s fiscal health. It is significant that the White Paper also comes before the presentation of the Revised State Budget on 19 June.

The UDF government announced plans to publish the White Paper soon after assuming power in May. Apart from Mr. Chandrasekhar, the committee tasked with drafting it included economist and former director of the Gulati Institute of Finance and Taxation D. Narayana and professor and director of the Center for Development Studies C. Veeramani.

Published – June 4, 2026 10:30 AM IST