SHOWING A MIRROR TO STATES

ERALA — a state with first-world social indicators — has for years come under severe criticism for fiscal mismanagement.

- DIPAK MONDAL @New Delhi

ERALA — a state with first-world social indicators — has for years come under severe criticism for fiscal mismanagement. The state, which maintains a high fiscal deficit (revised estimate of 3.5% in FY25), scores poorly in quality of expenditure and debt sustainability.

The state's committed expenditure — salaries, pension, and interest payments — account for 55% of its total expenditure (as per revised estimate for FY25). It spent a tiny sum of 14,000 crore out of a total expenditure budget of ₹1.79 lakh crore, or just 8% of its total expenditure in FY25. Interest payments gobble up 22% of Kerala's net receipt. Its total outstanding debt is 33% of the GSDP (compared to 15% in Gujarat, 18% in Maharashtra, and 26% in Tamil Nadu), and the fiscal deficit is 3.5% (compared to less than 3% in many better fiscally-run states).

No wonder, in a recent event, Finance Minister Nirmala Sitharaman said that states which consider themselves developed are ridden with debt.

With these statistics, it is no surprise that Kerala ranks among the lowest in the Niti Aayog's latest Fiscal Health Index 2025, which was released recently. Kerala ranks among the worst four states in the index, which, according to the Niti Aayog, is 'a valuable tool for assessing the fiscal performance of Indian states'. Most southern states have cut a sorry figure on the index — which ranks 18 Indian states for their fiscal performance based on a set of five key indicators.

All about the index

India, and assess their fiscal sustainability in the long term.

According to Niti Aayog, states account for two-thirds of public spending and one-third of total revenue. It is imperative to ensure fiscal well-being of states for achieving long-term fiscal sustainability and overall economic growth of the country. The need to closely monitor states' finances gave rise to the idea of creating a Fiscal Health Index.