NEW DELHI:– The Comptroller and Auditor General of India (CAG) has flagged a more than three-fold surge in the public debt of the country’s states over the decade ending 2022–23.
A first-of-its-kind decadal analysis by the CAG, presented at the State Finance Secretaries Conference in New Delhi, revealed that the total public debt of all 28 Indian states rose from Rs17.57 lakh crore in 2013-14 to Rs59.6 lakh crore in 2022-23.
During the same period, the average debt-to-GSDP ratio for states climbed from 16.66 per cent to 23 per cent. More worryingly, Kerala’s finances are worse than the country’s average, especially on the public debt front.
Kerala’s debt burden continues to deepen, with the state’s total liabilities projected to touch nearly Rs4.65 lakh crore by the end of 2025-26, according to recent budget projections and audit observations.
Three-fold rise in debt
While the state has managed to marginally lower its debt-to-GSDP ratio from previous highs, concerns remain over its growing reliance on borrowings to meet day-to-day expenses — a trend also observed across many Indian states, as flagged by the CAG.
As per the latest figures available, Kerala’s total liabilities stood at Rs3.88 lakh crore at the end of FY2022-23, against a Gross State Domestic Product (GSDP) of Rs10.17 lakh crore. This translates to a debt-to-GSDP ratio of 38.23 per cent— significantly above the 34.5 per cent cap recommended under the state’s Fiscal Responsibility framework.
Kerala’s Finance Minister K N Balagopal, in the state budget for FY2024-25, pegged the state’s liabilities at Rs4.31 lakh crore by March 2025. With GSDP expected to rise to Rs12.75 lakh crore that year, the government projects the debt-to-GSDP ratio to slightly decline to around 33.8 per cent.
However, by FY2025-26, total liabilities are expected to touch Rs4.65 lakh crore, based on current borrowing trends and the continuation of fiscal deficits.
A major point of concern flagged by the CAG in its latest audit is the use of borrowed funds to meet revenue deficits. In FY2022-23, only around 31.35 per cent of Kerala’s net borrowings were used for capital expenditure, while nearly 60 per cent went towards funding day-to-day operations, salaries, pensions, and interest payments. This practice of using loans to fund recurring expenses, instead of investments, undermines long-term fiscal health.
The CAG also highlighted the rising pressure from off-budget borrowings through agencies like the Kerala Infrastructure Investment Fund Board (KIIFB) and the Kerala Social Security Pension Ltd (KSSPL). These borrowings, though not directly accounted for in the state’s official budget, add significantly to the debt load and interest burden.
Kerala is not alone
While Kerala ranks among the states with higher debt ratios, it is not the worst. Punjab (40.35 per cent), Nagaland (37.15 per cent), and West Bengal (33.70 per cent) recorded the heaviest debt burdens relative to their GSDP.
On the other end, Odisha (8.45 per cent), Maharashtra (14.64 per cent), and Gujarat (16.37 per cent) maintained relatively healthier fiscal positions.
The CAG noted that many states breached the ‘golden rule’ of public finance — that governments should borrow only for capital expenditure, not for revenue spending. In FY23, 11 states, including Kerala, Andhra Pradesh, Punjab, West Bengal, Tamil Nadu, and Bihar, diverted part of their borrowings to fund revenue deficits.
This trend, if left uncorrected, risks eroding the fiscal space needed for long-term investments, especially in infrastructure, education, and healthcare.
As Kerala prepares to navigate its financial roadmap ahead of the 2026 state elections, pressure will mount to rein in borrowings, improve revenue generation, and refocus spending priorities.
With rising pension and salary bills, limited capital investment, and mounting debt, the state faces the tough challenge of ensuring sustainability without compromising on development.
