ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Kerala’s Budget and Public Debt

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The 202425 Kerala budget has been the focus of policy attention on how the state continues its development and social sector spending in the presence of mounting public debt. Evidence, however, indicates that the ongoing fiscal stress problem has evolved into a development crisis. Though the fiscal issue has been escalating in the last two decades, the sustainability of public debt in Kerala has gained wide attention with the publication of the Reserve Bank of India Report 2022, which categorised the state among Indias five most indebted states. Fiscal indicators have worsened vis--vis the limits of the Financial Responsibility and Budget Management (FRBM) Act, 2003, in which the debt-to-gross domestic product (GDP) ratio, revenue deficit, and fiscal deficit have risen to 34.62%, 2.3%, and 3.9% in 202223, respectively.

The restrictions of FRBMs limit, coupled with the inability to raise its own finances for development, have led to the creation of off-budget liabilities. The Government of Kerala formed the Kerala Infrastructure Investment Fund Board (KIIFB) and the Kerala Social Security Pension Limited (KSSPL) as companies through legislative bills to finance infrastructure and social security. However, the increasing off-budget liabilities from above have been treated by the Comptroller and Auditor General of India as part of government liabilities and included in the state governments market borrowing limit of 3% of GDP, curtailing further borrowings and worsening the fiscal situation. Against this background, the budget proposals for 202425 need to be scrutinised from the perspective of resource mobilisation and public expenditure, given the fiscal scenario of the state government.

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Published On : 9th Mar, 2024

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