Kerala’s outstanding liabilities have crossed ₹5.07 lakh crore.
Unpaid dues and deferred payments have piled up to nearly ₹49,000 crore.
The white paper says salaries, pensions and interest take up 77% of revenue receipts.
Kerala's total outstanding liabilities have crossed ₹5.07 lakh crore, while unpaid dues and deferred payments have piled up to nearly ₹49,000 crore, according to a fiscal status report tabled in the Assembly by Chief Minister V D Satheesan on Thursday.
The report was prepared by a three-member committee headed by former Cabinet Secretary K M Chandrasekhar.
Soon after assuming office, the new UDF government announced that it would bring out a white paper on the state's fiscal health and constituted the Chandrasekhar-headed panel for the purpose.
1 June 2026
Get the latest issue of Outlook Business
The white paper, titled "Kerala's Fiscal Health, A Status Report" presents a stark assessment of the state's financial position, warning that rising debt, mounting liabilities and heavy committed expenditure have severely constrained Kerala's ability to invest in development and infrastructure.
According to the white paper, salaries, pensions and interest payments alone consume 77% of the state's total revenue receipts, while interest payments account for 20.9%. At the same time, Kerala's capital expenditure stands at just 1.3% of Gross State Domestic Product (GSDP), among the lowest levels in the country.
The white paper finds that the state currently carries outstanding liabilities of ₹5.07 lakh crore.
In addition, the new government has inherited accumulated payment arrears, including ₹21,670 crore in Dearness Allowance arrears, ₹14,387 crore in Dearness Relief arrears and ₹3,431 crore owed through bill discounting arrangements. Together with other deferred payments, the total pending liabilities amount to at least ₹48,733 crore.
Describing the situation as a serious fiscal challenge, the report notes that the value of pending payments is almost equal to Kerala's annual net borrowing.
The white paper also raises concerns over treasury operations, stating that the state increasingly depended on emergency borrowing facilities from the Reserve Bank of India (RBI) to meet daily cash requirements.
In 2025, Kerala remained under Ways and Means Advances for 262 days and operated under overdraft for 84 days.
A major section of the report examines the functioning of the Kerala Infrastructure Investment Fund Board (KIIFB), which was created to mobilise resources for infrastructure projects outside the conventional budget framework.
According to the white paper, KIIFB currently has loan liabilities of around ₹21,000 crore that will ultimately have to be serviced by the state government. It also has projects worth around ₹35,000 crore that are yet to be funded.
It also reveals findings of the Comptroller and Auditor General (C&AG) that KIIFB lacks an adequate independent revenue base and that its debt is effectively state debt. It says KIIFB's cost of borrowing is about one to 1.5 percentage points higher than direct government borrowing, raising questions about the financial advantages of the model.
"KIIFB was a bold institutional innovation and was an attempt to create a professionally managed, market-facing infrastructure financier that could bypass the fiscal constraints binding the state budget," according to the white paper.
However, it adds, "Its borrowings are now state borrowings. Its financing costs are consistently higher than government borrowing rates." According to the white paper, the issue is no longer whether KIIFB should continue in its present form, but how the state should manage the transition while honouring existing liabilities and preserving the institution's technical and organisational capacity.
