Thiruvananthapuram | Kerala's economy expanded nearly 10 per cent in 2024-25, but the state failed to meet its fiscal targets as revenue growth remained weak, spending increased and debt levels stayed elevated, according to a report by the CAG tabled in the state Assembly on Tuesday.

The report said Kerala's Gross State Domestic Product (GSDP) grew 9.97 per cent during the financial year, up from 9.30 per cent a year earlier.

However, the stronger economy did not translate into better government revenues.

Revenue receipts increased by just 0.30 per cent, while the state's own tax revenue rose only 3.11 per cent, reflecting slow growth in collections despite the expanding economy.

Although Kerala received around 14 per cent more through central tax devolution, grants from the union government fell 42 per cent, mainly due to the end of a Finance Commission revenue deficit grant.

Government spending continued to rise, with total expenditure increasing 8.97 per cent during the year.

Salaries, pensions and interest payments remained the biggest burden on the treasury, together accounting for a large share of revenue expenditure and consuming around 80 per cent of the state's revenue receipts.

Though the CAG flagged the continued use of off-budget borrowings through state entities such as KIIFB and KSSPL, with repayments ultimately serviced from the state government's Consolidated Fund, it has also noted that the expenditure on developmental works registered a decadal high of Rs 17,886.78 crore during the financial year.

The audit report said Kerala failed to achieve any of the targets set under the Kerala Fiscal Responsibility Act.

The revenue deficit widened to 2.49 per cent of GSDP from 1.60 per cent, while the fiscal deficit increased to 3.86 per cent from 3.02 per cent in the previous year.

At the same time, the state's outstanding liabilities stood at Rs 4.46 lakh crore as of March 31, 2025, equivalent to 35.71 per cent of GSDP.

When off-budget borrowings of Rs 39,230.33 crore are included, the debt burden rises to 38.86 per cent of GSDP, the report noted.

In one of the report's notable observations, the auditor said Rs 262.06 crore of unspent public contributions under the Chief Minister's Disaster Relief Fund (CMDRF) had been transferred to the state's Consolidated Fund.

According to the report, this understated both the revenue deficit and fiscal deficit by the same amount.

An interest-free 50-year loan of Rs 2,715.67 crore from the Union government supported part of this investment, the report added.