# Ajayan | Kerala’s White Paper confirms what everyone already knew: the State is sinking deeper into debt. The real warning, however, lies in its “Way Forward” section, which presents privatization as the answer. From a Congress-led UDF, that is hardly surprising. The party that abandoned Nehruvian economics and ushered in liberalization in 1991 is now merely reaping what it sowed. Kerala’s decade-long CPM rule offered little alternative; it followed the same neo-liberal script, only with more ideological camouflage.
Three things stand out in the White Paper – the debt crisis, KIIFB and finally the Way Forward. First, it presents Kerala’s debt crisis with surprisingly little blame-shifting. The State’s outstanding liabilities touched Rs 5.07 lakh crore in 2025-26, though one may recall that Chief Minister VD Satheesan, as Opposition Leader then, had warned it could be Rs 6 lakh crore. The larger point, however, is unavoidable: Kerala’s debt burden climbed from 29.37% of GSDP in 2016-17, when the LDF took office, to 33.22% in 2025-26 when voters devastatingly showed it the door. No amount of Marxian wordplay can hide the fact that Kerala now carries a debt load well above that of most Indian States.
Kerala’s fiscal priorities are hard to defend. Despite posting a high fiscal deficit of 3.78% in 2025-26, the State’s capital expenditure was just 1.3% of GSDP, among the lowest in the country. The reason is straightforward: nearly 77% of revenue is swallowed by salaries, pensions and interest payments, leaving precious little for development. Add to this, pending liabilities of Rs 48,733 crore, including unpaid DA and DR arrears to employees and pensioners, along with large dues to contractors.
In short, Kerala has been borrowing heavily not to build the future, but increasingly to pay for the past. Throughout the LDF’s decade in power, the standard refrain was that the Centre was starving the State of funds and denying it the borrowing space it deserved. The White Paper, however, punctures that convenient narrative. Its assessment is blunt: Kerala has violated the basic principle of public finance - borrow to invest, so that growth repays the debt. Instead, borrowings have increasingly financed consumption and committed expenditure, steadily eroding the State’s growth-generating capacity. The Centre may have imposed constraints, but the White Paper leaves little doubt that Kerala’s fiscal malaise was also home-grown.
The second striking feature is the White Paper’s treatment of KIIFB. Surprisingly, it does not attack the concept itself. Instead, it zeroes in on how KIIFB was run and echoes the CAG’s 2024-25 objections. The era of treating KIIFB borrowings as somehow distinct from State debt is effectively over. These borrowings now count towards Kerala’s Annual Borrowing Ceiling, and for good reason. KIIFB’s debt is not serviced through robust independent revenues but through budgetary support from the State’s Consolidated Fund. In other words, the debt may sit on KIIFB’s books, but the taxpayer ultimately foots the bill. The financial engineering that once projected KIIFB as an off-budget miracle now looks increasingly like debt by another name.
When KIIFB was being aggressively pushed by the first Pinarayi Vijayan government, many economists warned that large-scale market borrowings at relatively high interest rates could eventually boomerang on the State. Their concerns were brushed aside. KIIFB was marketed as an innovative financing vehicle; in reality, it was little more than off-budget borrowing dressed up as fiscal ingenuity. Few images capture this contradiction better than a Marxist Chief Minister proudly ringing the bell at the London Stock Exchange to celebrate a borrowing programme. Ideology, it seemed, stopped where debt began.
The White Paper now strips away much of that mythology. It notes that KIIFB carries an outstanding loan liability of about Rs 21,000 crore, with repayments set to begin soon. The bills for yesterday’s grand financial experiment are now arriving. It also has projects worth around Rs 35,000 crore which are yet to be funded
Before bringing KIIFB under the budgetary control of the Finance Department or other administrative bodies, the government must first investigate how the mechanism operated, why funds were spent and hold those responsible accountable.
Thirdly, and perhaps most concerning, is the paper's proposed “way forward.” Kerala has the largest number of Public Sector Enterprises (PSEs) in the country, with over 130 under state control. Yet, just five account for 86% of total state investment. Most PSEs remain loss-making, with cumulative losses reaching Rs 78,851 crore by the end of the last fiscal year. KSRTC, the Kerala Water Authority, and Kerala Social Security Pension Ltd alone account for 72% of these losses. This calls for a serious reassessment of the sector. Divestment, restructuring, and mergers based on rigorous evaluation merit consideration. However, the recommendation to open the power sector to private investment is particularly troubling. Given the growing influence of large corporate players already entrenched in Kerala and actively expanding their footprint in the power sector nationwide, such a move warrants extreme caution. Likewise, raising the retirement age is unlikely to be politically or socially viable amid mounting unemployment. Selective mergers may be justified, but wholesale privatisation is neither a prudent nor convincing solution.
What the government must recognize is that privatization is not a cure-all for the state's economic challenges. Yet, the familiar neoliberal refrain of the government acting merely as a “facilitator” runs through the new Government’s proclamations. If this is indeed the government’s chosen path, it marks a decisive break from the Nehruvian socialist ideals it continues to invoke. The contradiction is glaring. The forthcoming Budget will show whether those ideals still guide policy, or survive only as political rhetoric.