Kerala’s Fiscal Position: Beyond the Rhetoric of Crisis

Kerala has always been accused by both the Congress and the Bharatiya Janata Party of facing a serious financial crisis whenever the Left Democratic Front (LDF) comes to power. Union Finance Minister Nirmala Sitharaman has said multiple times that the state is mismanaging its money. BJP state leaders has also claimed that Kerala is drowning in debt. Even Congress leaders in the state have been carrying the opinion of BJP leaders.

But a recent report by the Comptroller and Auditor General (CAG) of India, tells a very different story. This report, which looked at the finances of all 28 Indian states over ten years, shows that Kerala is not in the financial mess that many claim it is. In fact, Kerala ranks 15th among Indian states when it comes to the ratio of debt to its Gross State Domestic Product (GSDP)—which is a key measure of a state's financial health.

Eight states have a worse debt situation, with debt levels over 30% of their GSDP. Kerala’s debt stands at 24.71%, which places it in the middle category. More importantly, Kerala’s own budget numbers show that this has come down even further—to 23.38% in 2023–24, and 23.33% in 2024–25.

This directly challenges the claims made by many national and state-level leaders that Kerala is sinking in debt or is unable to manage its finances. The CAG report shows that while Kerala does have debt, it is not dangerously high, and is actually coming down year by year.

Another major accusation made against Kerala is that it doesn’t collect enough taxes and depends too much on the union government for money. But the CAG report again proves this wrong. Kerala is one of only eight states in India where more than 60% of its total income comes from its own sources. In fact, Kerala’s own revenue is now at 65.61%, which is more than double what it was ten years ago. This means Kerala is not heavily dependent on the Union, as the Union Government claims. It is doing better than most states in generating its own money through taxes and other means.

Even with all this data, the Union Finance Minister has continued to criticise Kerala’s financial practices. She has accused the state of borrowing large amounts through government-run agencies like KIIFB (Kerala Infrastructure Investment Fund Board) and using these borrowings for projects without proper planning. In Parliament, she even said that almost all of Kerala’s borrowings were being used just to pay back old loans.

But Kerala’s government has strongly disagreed. They say that their borrowings are well within the limits set by the union government, and that these funds are being used for development projects like roads, hospitals, and schools. They also say that even the union government uses similar off-budget borrowing methods, so it is unfair to single out Kerala.

Kerala has faced reduced funding and interference from the Union government in its borrowing powers. For instance, in the 2024–25 financial year, the Union Government approved Rs. 328.9 crore for Kerala under the Samagra Shiksha school education scheme, but not a single rupee was released. The Union government also offered Kerala a one-time financial aid of Rs. 5,000 crore, but with a reduction in its future borrowing capacity.

Kerala has taken the matter to the Supreme Court, for the Union Government weakening federal principles by controlling how much states can borrow, and by holding back funds that are rightfully due. The withholding of funds by the Union government not only hampers Kerala’s ongoing development projects but also undermines the very principles of cooperative federalism enshrined in the Constitution.

When funds approved for critical schemes like education are not released, it disrupts service delivery and affects the lives of millions of citizens who depend on these services. Moreover, the conditions imposed on financial aid—such as limiting the state's borrowing capacity—restrict Kerala’s ability to plan and invest effectively for its future growth.

This approach sets a worrying precedent for the relationship between the Union Government and the states, particularly those governed by opposition parties. It raises concerns about the equitable distribution of resources and the autonomy of states to manage their finances without undue interference. By withholding rightful funds and imposing restrictive conditions, the Union government risks deepening fiscal stress rather than alleviating it, which ultimately impacts the overall development and welfare of the people in Kerala.

Kerala’s challenge is therefore not just about managing finances prudently but also about asserting its rights as a state within a federal structure. Ensuring that states receive their fair share of resources without political bias is essential for balanced national progress and maintaining trust in India’s democratic and federal framework.

Despite all this, Kerala continues to manage its finances with care. Its debt levels are going down. Its own tax revenue is going up. It has not defaulted on any payments, nor has it delayed salaries or pensions. And it is doing all this while also fighting for its rightful share of funds from the union government.

In the middle of all the political noise, the CAG report brings much-needed clarity. It shows that Kerala is not in a financial emergency, and that the loud claims of a “debt trap” are not supported by facts.

Yes, Kerala does face financial challenges—like many other Indian states—but it is not in crisis. And most importantly, it is taking steps in the right direction.

The CAG’s findings remind us that financial matters should be discussed with facts, not with rhetoric Political opinions may differ, but numbers don’t lie.