Kerala faces an outstanding liability of ₹5.07 lakh crore (35.5% of GSDP) with committed expenditures (salaries, pensions, interest) absorbing 77% of revenue expenditure, compressing capital expenditure to just 1.3% of GSDP.

Debt Crisis of Indian States

• State debt now accounts for nearly one-third of India's general government debt (NITI Aayog’s Fiscal Health Index).
  • States like Punjab, West Bengal, Kerala, and Andhra Pradesh face persistent revenue and fiscal deficits, elevated debt levels (35–45% of GSDP), and high interest burdens.
• According to RBI, Indian States’ consolidated gross fiscal deficit increased to 3.3% of GDP (2024-25) and the outstanding liabilities to ~28% of GDP (March 2024).

Key Drivers of Rising State Debt

• Populist measures: High spending on subsidies, welfare, and freebies strains budgets. 
• Committed expenditure: Salaries, pensions, and interest consume 50–60%+ of revenue receipts (e.g., over 70–80% in Punjab/Kerala), crowding out capital investment. 
  • States like Kerala face ageing populations (>15% over 60), raising pension and healthcare costs. 
• Revenue weaknesses: Heavy reliance on central GST devolution; sluggish growth in own-tax revenues. 
• Other factors: Off-budget borrowings to bypass FRBM limits, COVID-era emergency loans, and escalating borrowing costs (higher premiums).