UDF’s white paper flags rising debt and low capital spendings

THe edward white paper presented by the newly-installed UDF authorities on the base of the tell gathering on Thursday presents a critical assessment of the state’s fiscal position at the end of two consecutive LDF terms.According to the report, the state’s outstanding liabilities were at ₹5.07 lakh crore in 2025-26 budget estimates. But the more useful way to read the number is in relation to the size of the state economy. The report’s own data shows that Kerala’s debt burden rose from 29.37% of GSDP in 2016-17 to 33.22% in 2025-26 RE, after touching 38.51% during the Covid-19 year of 2020-21. This means the debt ratio has eased from its pandemic peak, even though it remains above the state’s fiscal responsibility targets and higher than the average for major states.The white paper, branded as a status report on Kerala’s finances based on real data, was laid on the table of the House by Chief Minister VD Satheesan. The UDF promised such a document in its election manifesto to inform the general public about the state’s revenue, expenditure and debt as well as to help the new government prepare a roadmap for the future. The status report was prepared by an expert committee headed by KM Chandrasekhar, former vice-chairperson of the Kerala State Planning Board.The report shows that Kerala’s fiscal deficit was 4.28% of GSDP in 2016-17 and 3.78% in 2025-26 RE. On this metric, the end-point is lower than the starting point. The more serious concern is the persistence of the revenue deficit, which stood at 2.51% of GSDP in 2016-17 and 2.58% in 2025-26 RE. “In the case of RD, by 2019-20 Kerala should have eliminated the revenue deficit, or balanced the books. But except for the COVID-19 year (2020-21) every recent year reports large revenue deficits which are 1.5 to 5 percentage points higher than the targets,” said the report.Moreover, according to the report, Kerala’s capital expenditure of 1.3% of its GSDP is among the lowest in the country despite running a high fiscal deficit. “Kerala has been violating the basic tenet of ‘borrow to invest, growth will repay’ in a big way, weakening the growth-generating capacity,” it said.Though some cushion to the state’s finances was provided in the form of GST compensation and revenue deficit grants from the Union government, both have been currently stopped, the report stressed.The state also has a high committed expenditure. Pensions alone accounted for 21.5% of the state’s revenue receipts in 2025-26, the second-highest burden among major states after Himachal Pradesh. To be sure salaries and pensions together have absorbed more than half of Kerala’s revenue receipts for much of the past three decades.Furthermore, the report stated that the new UDF government would inherit ₹48,733 crore of accumulated payment arrears from the previous LDF administration, which account for 3.9% of the GSDP. And a substantial portion of the report was dedicated to KIIFB, the state government’s funding arm for large infrastructure projects, which was established in 1999 but grew considerably under the previous two LDF administrations led by Pinarayi Vijayan.According to the report, KIIFB has around ₹21,000 crore of unmet loan liability and projects worth around ₹35,000 crore still to be funded. It also cites CAG findings to argue that KIIFB’s debt is effectively state debt because repayment ultimately depends on state revenue. This weakens the original case for KIIFB as an off-budget route to finance infrastructure without affecting the state’s borrowing space.The report pin-pointed that the largest share of KIIFB-funded projects were implemented in Kannur, the home district of former chief minister Pinarayi Vijayan, with the district accounting for 20% of the total payments released. While Thiruvananthapuram accounted for 17% of payments released from KIIFB, Ernakulam got 11% of the share. In fact, the three districts absorbed nearly half of the total share.While Kerala has the largest share of Public Sector Enterprises (PSEs) in India with around 132 active firms partially or wholly owned by the state government, five of them accounted for 86% of the investments made by the State. The majority of the PSEs are making losses, it said, with the losses in 2024-25 standing at ₹78,851 crore. Three of them – Kerala State Road Transport Corporation (KSRTC), Kerala Water Authority (KWA) and Kerala Social Security Pension Limited (KSSPL) accounted for 72% of the net losses.The report puts forward a host of recommendations – from allowing private investment in the power sector, hiking the retirement age, merging PSEs to reduce tax outgoes to recasting land and labour laws and bringing KIIFB under the budgetary control of finance and other administrative departments.Please retain thisProf KP Kannan, a renowned development economist, called the white paper a ‘bold, evidence-based report.’“Within a short period of two weeks, the committee formed to assess the status of the state finances has come out with a remarkable report. The committee has done extensive statistical exercises and their conclusions are based on the evidence they found. It’s good that they have brought it before the pubic and there should be a fair, transparent discussion on it,” he told HT.On KIIFB, Prof Kannan said that he among other economists had warned that the Kerala government would incur a significant debt burden if they go ahead with large-scale market borrowing through KIIFB.“But then finance minister TM Thomas Isaac pooh-poohed us. We warned that it was a clear case of off-budget borrowing. Now, the report has stated that KIIFB has an unmet loan liability of ₹21,000 crore. The repayment schedule will begin soon and the new government will have to start repaying it,” he said.At the same time, the CPI(M) alleged that the white paper does not have a developmental approach and proposed recommendations that are in line with a right-wing, neo-liberal corporate policy.TM Thomas Isaac, former finance minister and CPM central committee member, said, “The real question is do we give priority to timely payment of welfare pensions and ensure smooth running of schools and hospitals? Or do we give priority to maintaining fiscal discipline? The biggest weakness of the white paper is that it does not have a developmental approach.”