Explained | Kerala’s mounting public debt

Kerala’s public debt has almost doubled in the last seven years, reaching ₹3,32,291 crore in March 2022

The story so far: Over the past few months, Kerala’s mounting debt liabilities have been brought into sharp focus with the Reserve Bank of India, the Comptroller and Auditor General (CAG), and the opposition Congress-led United Democratic Front (UDF) flagging the issue.

The State’s financial situation was recently highlighted by Kerala Finance Minister K.N. Balagopal in his sharp response against a slew of Central financial policies: cutting the fiscal deficit grant by ₹7,000 crore; discontinuation of the Goods and Services Tax (GST) compensation worth around ₹12,000 crore; and a proposed move to consider the “off-budget” borrowings of State government entities such as the Kerala Infrastructure Investment Fund Board (KIIFB) and Kerala Social Security Pension Ltd (KSSPL) as part of the State debt when fixing the State’s net borrowing ceiling.

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Here is a breakdown of Kerala’s public debt situation:

In June, the State Government informed the State Assembly that the cumulative debt of the State, as of March 2022, stood at ₹3,32,291 crore. This is a big leap from ₹1,89,768.55 crore in 2016-17. And according to the CAG, the ratio of public debt to the Gross State Domestic Product (GSDP) has risen from 20.43% in 2019-20 to 27.07% in 2020-21.

State finances have, in recent years, been marked by a steep rise in revenue expenditure, which has gone up from ₹91,096.31 crore in 2016-17 to ₹1,23,446.33 crore in 2020-21. Committed expenditure on interest payments, salaries, pensions etc. form a significant portion of this spending.

In the latest audit report on State Finances, the CAG advised the State to closely monitor debt sustainability and make ‘‘earnest efforts’‘ to maintain a healthy debt-GSDP ratio. Open market loans constituted 54% of the total fiscal liabilities of the State. The committed liability of the Government as a percentage of the revenue expenditure rose from 61.22% in 2016-17 to 68.01% in 2019-20.