Rising debt and shrinking fiscal space have not weakened welfare politics in Kerala. Despite warnings from CAG and RBI, parties continue to rely on welfarism during elections
Billboards of Kerala Chief Minister Pinarayi Vijayan are frequently spotted along the national highways (File photo: PTI)
Akshita Singh New Delhi
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Kerala’s political economy reflects a deep paradox: even as the state faces rising public debt and persistent fiscal stress, welfare spending remains central to governance and electoral politics. What appears as fiscal excess is rooted in structural factors such as ageing, migration, and a welfare-dependent social model.
Audit findings from the Comptroller and Auditor General (CAG) and assessments by the Reserve Bank of India (RBI) have repeatedly flagged sustainability risks. The debate has shifted from whether welfare can continue to whether it can be sustained without further straining finances.
Ahead of the State Assembly polls, all major parties—the CPI(M)-led LDF, Congress-led UDF, and BJP-led NDA—have centred their campaigns around welfare despite fiscal constraints.
Rising debt and structural stress
Kerala’s debt remains elevated. Outstanding liabilities are estimated at over ₹3 trillion in 2024–25, with the debt-to-GSDP ratio projected at 34–35 per cent, well above the 20 per cent benchmark under fiscal frameworks.
CAG data shows liabilities hovering around 37–38 per cent of GSDP, breaching recommended limits. The state continues to run a revenue deficit, indicating routine expenditure exceeds income—a structural imbalance rather than a temporary strain.
The quality of spending is another concern. A large share of borrowings finances revenue expenditure instead of capital creation.
“If over 80 per cent of a state’s expenditure is absorbed by revenue spending, the real question is where capital formation will come from. This is how fiscal stress gradually evolves into a structural debt trap,” Sumit Kaushik, a public policy consultant, told Business Standard.
Nilanjan Banik, professor at Mahindra University, told Business Standard that nearly 98 per cent of recent borrowings have gone into servicing existing debt. “This is a classic debt trap signal, borrowing not to build, but to repay,” he said.
Why the debt persists
Kerala’s expenditure profile is heavily committed. Salaries, pensions, and interest payments account for over 60 per cent of revenue expenditure, leaving limited room for capital investment.
Welfare spending further shapes this structure. Kerala consistently allocates a higher share of its budget to health, pensions, and social protection than most states.
Revenue constraints worsen the situation. CAG data shows revenue receipts have not kept pace with expenditure, with uneven growth in own tax revenue driving continued borrowing.
Demographics add pressure. Kerala is India’s fastest-ageing state, increasing pension and healthcare liabilities. At the same time, heavy reliance on overseas remittances supports consumption but does little to expand the tax base.
Political analyst Tushar Gupta said the issue lies in resource allocation. “If the state is not spending enough on capital expenditure, it signals fiscal imbalance. Without infrastructure investment, it becomes difficult to generate future revenue,” he told Business Standard.
He added that welfare alone cannot sustain long-term growth. “States like Karnataka and Tamil Nadu run welfare programmes without the same level of fiscal strain. Kerala needs to incentivise industries to strengthen revenue generation.”
Why welfare remains politically central
Despite fiscal stress, welfare remains core to Kerala’s politics for structural reasons.
First, the beneficiary base is large. Over 6 million people receive social security pensions, making welfare politically significant.
Second, welfare provides income stability in a labour market marked by high educated unemployment and migration.
Third, welfare is embedded in Kerala’s development model, where public spending on health, education, and social protection has created expectations of state support.
The paradox: High debt, high dependence
This creates a structural paradox.
Fiscal indicators show stress—rising debt, persistent deficits, and limited borrowing space. Yet the same factors driving this stress—ageing, migration, and weak job absorption—also increase dependence on welfare.
Welfare thus acts as both a source of fiscal pressure and a response to economic vulnerabilities, making it difficult to scale back.
Banik highlighted the imbalance in spending. “Only about 13 per cent of borrowings go into capital expenditure, while the rest is used for salaries, pensions, and interest. Debt grows without creating assets that generate future income,” he said.
Political consensus with competing narratives
All major parties reflect this reality. The debate is not about reducing welfare, but about delivery and management.
The LDF, led by Chief Minister Pinarayi Vijayan, has focused on continuity, highlighting schemes such as social security pensions, the LIFE Mission, and Aardram health reforms. Vijayan has said the government fulfilled “around 97 per cent” of its manifesto promises.
The UDF has criticised fiscal management but stopped short of proposing welfare cuts, instead emphasising efficiency and discipline.
The BJP has called the model “debt-driven” while promising expanded welfare through central schemes.
On Centre-state dynamics, Banik noted both sides share responsibility. “With GST, Kerala has seen reduced revenue share. At the same time, the Centre argues non-productive expenditure must be controlled,” he said.
Across parties, there is no appetite to reduce welfare commitments. Differences lie in approach—expansion, efficiency, or restructuring—but not in the centrality of welfare.
The key question ahead is whether Kerala can sustain its welfare model without deepening fiscal imbalance—a challenge that will shape both governance and electoral outcomes.
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First Published: Apr 20 2026 | 5:04 PM IST