A groundbreaking new research paper reveals that Kerala is on track to stabilize its debt through careful financial management, demonstrating a promising model where ambitious development goals align seamlessly with fiscal responsibility. This optimistic outlook comes in the wake of the latest findings from the Comptroller and Auditor General (CAG).
Authored by P.S. Renjith, an Assistant Professor at the Gulati Institute of Finance and Taxation (GIFT), the forthcoming paper, “Kerala’s Debt Story: From Pandemic Spike to Sustainable Path,” offers a fresh perspective on the state’s debt situation. It directly addresses the recently released CAG report, ‘State Finances 2022–23: A Decadal Analysis,’ which challenged earlier concerns by suggesting that Kerala’s financial health might not be as fragile as once believed.
A Stable and Moderate Financial Standing
The CAG report highlights Kerala’s outstanding liabilities at 37.68% of its Gross State Domestic Product (GSDP), with public debt at 24.7%. Crucially, the report concludes that Kerala’s financial standing is surprisingly stable—far from a critical state—especially when compared to many other Indian states.
Further supporting this positive outlook, recent data reinforces these optimistic assessments. Kerala’s debt ratio, which reached a high of 39.96% during the 2020-21 period, has significantly decreased to 34.2% by 2023-24. Current budget estimates predict a further drop to 33.8% by 2025-26. This consistent improvement demonstrates a much more stable fiscal adjustment compared to states like Punjab, Himachal Pradesh, and West Bengal. The research paper emphasizes that “these trends validate earlier projections by GIFT, indicating that Kerala could achieve a sustainable debt level of 27.8% by 2030-31, assuming continued economic growth and stringent fiscal management.”
This reassuring CAG report has reignited discussions around Kerala’s public debt. It directly contrasts with a 2022 Reserve Bank of India (RBI) report, ‘State Finances: A Risk Analysis,’ which controversially labeled Kerala as one of the most fiscally vulnerable states, forecasting that its debt would remain above the 35% threshold well into 2026–27.
The newest CAG report, which, as the paper notes, emphasizes “balance rather than crisis,” has undoubtedly fueled a renewed public and academic debate about the state’s financial future.
Navigating Future Challenges
However, the paper cautions that Kerala’s journey forward is not without its obstacles. Key challenges include limitations imposed by the central government on generating additional revenue, alongside the increasing financial demands of an aging population. The crucial task for the state is to ensure that its efforts towards fiscal consolidation do not undermine the vital welfare and development programs that have long defined Kerala’s unique progress model.
The paper concludes with a powerful vision: “Should Kerala successfully maintain its economic growth, uphold strict borrowing discipline through smart expenditure, effectively manage the escalating needs of its senior citizens, and see a loosening of central revenue restrictions, it stands poised not just to stabilize its debt, but to become a beacon—a living example of how development aspirations and fiscal accountability can truly advance in unison.”