Despite grave concerns raised in the white paper, Kerala budget silent on bringing down committed expenditure
After releasing the “Kerala’s Fiscal Health — A Status Report” (white paper), which raised serious concerns over the State’s rising debt burden while strongly criticising
After releasing the “Kerala’s Fiscal Health — A Status Report” (white paper), which raised serious concerns over the State’s rising debt burden while strongly criticising the previous Left government for alleged fiscal mismanagement, the new United Democratic Front (UDF) government on Thursday presented its maiden budget. The budget estimates the debt-to-GSDP ratio to come down marginally to 33.5% in 2026-27, compared with 34.87% (actuals, 2024-25) or 34.26% (revised estimates, 2025-26). This is not because debt is expected to fall — the budget in fact projects total outstanding debt to rise 11.6%, from ₹4.89 lakh crore to ₹5.46 lakh crore — but because of its optimistic outlook that GSDP would grow nominally by 14.15% and revenue receipts by 23.8%. Even if the government’s optimistic projections come true, Kerala will indisputably remain among the States with the highest debt burden. As per the Reserve Bank of India’s (RBI) data, the debt-to-GSDP ratio for all States combined stood at 27.01% in 2024-25. The chart below shows the ten States with the highest debt-to-GSDP ratio in 2024-25. However, a rather unique Kerala phenomenon, highlighted prominently by the white paper, is its “structural” problem of a high share of “committed expenditure”, which not only leaves little or no room for capital expenditure but also contributes to mounting revenue deficits. Committed expenditure has three main components: salaries, pensions and interest payments on loans previously taken. The three together account for nearly 78% of the State’s revenue receipts, as per RBI’s data for 2024-25.
The share is only 45.4% at the all-India level (excluding Union Territories). The budget projects it at 72.14% for 2026-27, which would still be the second-highest in the country, after Punjab — whose economy is only about two-thirds the size of Kerala’s. The chart below shows committed expenditure as a share of revenue receipts in States whose GSDP was at least ₹5 lakh crore in 2024-25. Of the total committed expenditure, salaries and pensions alone account for more than half of the State’s revenue receipts. The budget estimates salary and pension expenditure at ₹88,000 crore in 2026-27, nearly 52% of the estimated revenue receipts of ₹1.7 lakh crore. The chart below shows how this trend has remained roughly the same in Kerala. The share of committed expenditure in total revenue receipts touched its peak of 81.2% in 2021-22, when the previous government cleared certain backlogs related to salaries and pensions and undertook some one-time COVID-19-related relief measures. On committed expenditure being a crucial problem, the white paper noted: “The most direct structural explanation for Kerala’s treasury stress is the share of its revenue that is pre-empted before any discretionary decision.” It further said: “The State spends almost 80% of its resources on salaries, pensions and interest, far more than many other states. It is not right to take taxes from the people and spend most of it on salaries and pensions… Now is the time for hard political decisions,” adding that measures such as increasing the retirement age and limiting pay commission revisions to once every ten years should be considered.
