Kerala's treasury finally runs out of excuses

For years, Kerala's fiscal debate resembled a village festival loudspeaker. Everyone shouted, and nobody listened. While one side insisted everything was fine, the other side insisted the state was on the verge of collapse. Somewhere beneath the slogans, the accusations and the televised outrage, the actual numbers sat patiently waiting for attention.

And on June 4, those numbers finally got their turn. The fiscal status report tabled in the Assembly by the V D Satheesan government is not a thrilling read. At nearly two hundred pages, it contains neither political poetry nor ideological romance. What it does contain is something far rarer in contemporary politics. It contains arithmetic. And arithmetic, unlike political spokespersons, has no party affiliation.

The most startling revelation is not the size of Kerala's debt. It is the condition of Kerala's treasury. For much of 2024-25, the state treasury was effectively surviving on emergency support from the Reserve Bank of India.

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Negative balances became routine rather than exceptional. Kerala spent 262 days under Ways and Means Advances and another 84 days in overdraft during 2024-25, compared to just 16 days under WMA and no overdraft days in 2015-16.

A state that once went years without requiring such support now appears unable to navigate a financial year without it. That should alarm every citizen regardless of political preference. Governments can survive elections. Treasuries cannot survive arithmetic.

The report demolishes a comforting myth that has dominated public discourse for years. The problem was never merely that the Centre was unfair. The Centre may well have been unfair. Kerala's share of central taxes has indeed declined, GST compensation ended, and revenue deficit grants disappeared.

The latest Finance Commission award leaves a substantial hole in the state's projections. Yet the report shows that even while receiving ₹42,443 crore in GST compensation and ₹34,153 crore in revenue deficit grants between 2020-21 and 2023-24, a combined ₹76,596 crore, Kerala failed to correct its underlying imbalance. The transfers masked the disease. They did not cure it. Once the transfers stopped, the patient was forced to confront the diagnosis. That diagnosis is brutal.

Seventy-seven paise out of every rupee Kerala earns is consumed before a single new road is built, before a single school is improved, before a single hospital receives additional support. According to the report, salaries account for about 28 paise, pensions for 22 paise, and interest payments for 27 paise of every revenue rupee.

Salaries. Pensions. Interest payments. Together, they consume nearly everything. A government that spends most of its income servicing past commitments has very little left to shape the future. This is where the report becomes particularly uncomfortable reading.

Kerala's political culture has long treated expenditure as a virtue in itself. Every subsidy was compassionate. Every salary revision was progressive, every pension increase was humane, and every borrowing programme was visionary. What received far less attention was the bill.

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Bills, unfortunately, possess a stubborn habit of arriving. The accumulated arrears inherited by the new government amount to nearly ₹49,000 crore, including around ₹14,000 crore in dearness allowance arrears, ₹18,000 crore in pension-related liabilities, and thousands of crores in unpaid contractor bills, medical reimbursements and scholarship commitments. That is not a theoretical liability, but it is money already owed.

A family that postpones paying electricity bills does not become richer. It merely creates the illusion of affordability. The report suggests Kerala has been practising that illusion on an industrial scale. The most politically explosive chapter concerns KIIFB.

When KIIFB was launched, it was presented as an ingenious solution. Infrastructure would be created without burdening the state's borrowing limits, projects would move faster, and development would accelerate. For a while, the model appeared almost magical. But the problem with magic is that accountants eventually arrive. The report points to a simple reality. If the state's consolidated fund ultimately services the debt, then the debt belongs to the state, whether it sits within a special-purpose vehicle or not. One may move the furniture around the house, but the mortgage remains.

The findings become even more uncomfortable. Borrowing through KIIFB costs more than direct state borrowing, with some KIIFB bond issuances carrying interest rates above 8 per cent, even though the state could borrow more cheaply through conventional channels. District-level allocations raise difficult questions about equity and political influence. Governance arrangements appear to have stretched established administrative norms.

Most importantly, KIIFB now carries obligations of more than ₹56,000 crore, including committed repayments extending well into the future that will eventually land on the public balance sheet. What was advertised as a route around fiscal constraints may ultimately have deepened them. Then comes Kerala's vast ecosystem of public sector enterprises.

Every government loves announcing a new corporation. Far fewer governments enjoy explaining why corporations lose money every year. The state's portfolio of public enterprises has become a museum of accumulated liabilities. The report notes that aggregate losses of state public sector enterprises have crossed ₹78,851 crore, while several major entities report negative net worth.

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KSRTC alone carries liabilities exceeding ₹13,000 crore and continues its seemingly eternal relationship with financial distress. KSEB remains trapped between political expectations and economic realities, with mounting financial pressures despite repeated support.

The report's findings about electricity duty collections are particularly troubling because they go beyond inefficiency and enter the realm of institutional propriety. The larger question, however, is unavoidable. How many loss-making enterprises can a fiscally stressed state continue to subsidise indefinitely?

At some point, nostalgia ceases to be economic policy. Perhaps the most disturbing section of the report concerns those with the least political power. Whenever governments run out of money, the cuts rarely begin with the influential. They begin where resistance is weakest.

The data shows a steady decline in social sector expenditure within the plan budget. More troubling still is the dramatic decline in allocations reaching Scheduled Castes and Scheduled Tribes. The report notes that actual expenditure under the Scheduled Caste Sub Plan and Tribal Sub Plan components fell significantly short of mandated proportions in multiple years, with utilisation gaps running into hundreds of crores.

One statistic deserves to be repeated until it becomes impossible to ignore. Constitutionally mandated communities that should have occupied a central place in developmental expenditure have gradually been pushed to the margins. Fiscal crises are often discussed in terms of bond yields, deficits and borrowing ceilings. For ordinary citizens, this is experienced as delayed scholarships, postponed welfare benefits, and shrinking opportunities. That is the human face of a balance sheet.

The report itself is not without limitations. It was prepared quickly, and some areas do require deeper investigation. Several recommendations remain broad rather than operational. And because it is produced by a new government evaluating its predecessor, political motivations cannot be dismissed so easily. Any intelligent reader should approach the document critically.

But criticism cannot become denial. The sheer volume of evidence presented makes one conclusion difficult to escape. Kerala is facing a structural fiscal crisis, not a temporary cash shortage or a statistical misunderstanding, and not merely a dispute with New Delhi. A structural crisis.

The most revealing line in the report may be the least dramatic. It notes that only about 23 per cent of borrowing in recent years translated into capital expenditure, while the overwhelming majority financed revenue expenditure, deficits, and debt-servicing obligations. That single observation explains much of Kerala's predicament. Borrowing for investment can generate future income. Borrowing for consumption merely postpones the reckoning, and that reckoning has now arrived.

The new government deserves credit for putting these realities before the public rather than hiding them behind optimistic PowerPoint presentations and carefully curated press conferences. But publication is the easy part. Implementation is where governments discover whether they possess courage or merely rhetoric. The report itself lists the likely battlefields. Retirement age reform, pension restructuring, public sector reform, subsidy rationalisation, private investment, land and labour reforms, and a rethinking of the state's relationship with enterprise and growth.

Every one of these proposals will provoke opposition. Every one of them has a constituency prepared to resist. That is why the real significance of this report lies not in what it reveals about the previous government, but in what it demands from the present one. For years, Kerala's politics has specialised in distributing promises. The state's finances are now demanding choices.

Numbers have finally entered the conversation, and the question is whether anyone is prepared to listen to them. Because balance sheets, unlike politicians, do not negotiate. And arithmetic, unlike ideology, always gets the last word.

The author is a National Award winner for Best Narration and an independent political analyst. Views expressed are personal.