Kerala CM VD Satheesan posted on X that the financial White Paper, which has been tabled in the Assembly on June 4, is not a "political document, but a fact-based assessment of Kerala’s fiscal position inherited by the new government". Photo: X| @vdsatheesan
Kerala fiscal White Paper sparks showdown in assembly over Rs 5.07-lakh-crore debt
As Kerala CM tables a grim status report suggesting PSU mergers, private capital entry, LDF hits back, saying external expert panel is violation of legislative rules
A detailed status report on Kerala’s finances has set off a sharp political confrontation, with the data painting a strained fiscal picture and the Opposition questioning the legitimacy of the document itself.
Even before the politics around the status report began to unfold in the Assembly, its recommendations had already set the terms of the debate. The document goes beyond diagnosing Kerala’s fiscal stress and outlines a set of corrective measures that, if implemented, would mark a significant shift in the state’s economic approach.
Corrective measures
Among the key suggestions is a relook at the government’s expenditure structure, including measures such as rationalising the retirement age and containing the long term burden of salaries and pensions. The report also points to the need for restructuring the public sector, where persistent losses have accumulated across enterprises.
It suggests exploring disinvestment, closure or restructuring of non-strategic units while protecting essential services.
In a more specific proposal, the report recommends reworking the state’s supply and distribution system by merging Kerala State Civil Supplies Corporation with the profitable beverages corporation, allowing losses in one arm to be offset against gains in the other. This, it argues, could reduce the tax burden and improve fiscal efficiency.
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The document also calls for a shift from production-based subsidies to consumption-based subsidies, tighter adherence to financial rules, and greater transparency in off budget borrowing. It stresses the need to open sectors such as power to private investment and to ease regulatory constraints around land and labour to attract industry.
Taken together, the recommendations indicate a move towards a more market oriented framework, with a greater role for private capital and stricter fiscal discipline. It is this combination of fiscal diagnosis and structural reform proposals that has turned the report into more than just an accounting exercise, setting the stage for both policy debate and political differences.
Kerala's financial health
The report places Kerala’s total debt at ₹5.07 lakh crore, about 35.5 percent of Gross State Domestic Product. It identifies a structural constraint at the core of the state’s finances. Around 77 per cent of revenue receipts are absorbed by committed expenditure such as salaries, pensions and interest payments. This leaves limited room for discretionary spending.
The compression is visible in development and capital spending. Capital expenditure is estimated at about 1.3 percent of GSDP, far below the national average. Development expenditure as a share of total spending also trails national levels. The report notes that borrowing is largely financing current expenditure rather than asset creation, weakening future revenue capacity.
Cash flow data points to sustained pressure on the treasury. The state has depended heavily on short term borrowing from the Reserve Bank of India.
In 2025, Kerala used Ways and Means Advances for 262 days and was in overdraft for 84 days, indicating persistent liquidity gaps.
The incoming government also inherits a large stock of unpaid obligations. Arrears, including dearness allowance and dearness relief dues, payments to contractors and bank related liabilities, total ₹48,733 crore. The figure is close to the scale of annual borrowing, showing the extent of deferred payments.
Off budget liabilities
The report highlights off budget liabilities as a key concern. The Kerala Infrastructure Investment Fund Board carries outstanding debt of about ₹21,000 crore.
It argues that these liabilities are effectively borne by the state, raising questions about transparency and fiscal accounting. The document also flags the limited revenue base of KIIFB and its higher borrowing costs compared to the government.
Public sector enterprises add to the fiscal burden. Accumulated losses have risen to ₹78,851 crore, with a few entities accounting for most of the deficit. Continued budgetary support to loss-making units diverts resources from core sectors such as infrastructure, health and education.
The squeeze on resources is reflected in plan expenditure. Its share in total spending has declined steadily. Allocations for Scheduled Castes, Scheduled Tribes, backward classes and minorities have reduced significantly over time. The report links this decline to the dominance of committed expenditure and the lack of fiscal space.
On the revenue side, the state faces shortfalls against budget estimates. Own tax revenue has consistently underperformed projections, contributing to large deviations between budgeted and actual figures. At the same time, changes in central transfers and the end of GST compensation have tightened fiscal conditions.
The document situates these trends within a broader economic context. Kerala’s economy remains service driven, with limited industrial expansion.
High unemployment among educated youth and dependence on remittances continue to shape the state’s growth pattern. The report calls for increased private investment, industrial development and job creation to address structural weaknesses.
Pinarayi Vijayan hits out
The findings have triggered a procedural and political challenge from the Opposition leader and former Kerala Chief Minister Pinarayi Vijayan, who questioned the manner in which the document was prepared and presented.
Vijayan pointed out that the Chief Minister had earlier stated that a three-member committee was tasked with preparing the white paper, and that all members were from outside the government system. He argued that the established practice requires such documents to be prepared by the finance department and presented through formal procedures.
“The finance department was bypassed and confidential financial data was shared with individuals outside government service. This document cannot be treated as official and has no legal backing. The House has not authorised the preparation of such a report. This is a violation of established rules and raises serious concerns about the handling of sensitive financial information. A document prepared without due process cannot be included in the official records of the Assembly. If the government intended to present a white paper, it should have formally tasked the finance department,” said the Opposition leader in a statement.
He characterised the document as "political" in nature and said placing it before the House amounted to disrespect for legislative procedure. He sought a ruling from the Speaker on whether such a document can form part of Assembly proceedings.
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