Thiruvananthapuram, Kerala – Kerala is grappling with a significant financial challenge as its public debt has surged to an alarming 35% of its Gross State Domestic Product (GSDP), making it the highest among all Indian states. This stark warning comes from K.M. Chandrasekhar, former Union Cabinet Secretary and current Vice Chairman of the Kerala State Planning Board.
Speaking at the India Today South Conclave, Chandrasekhar clarified that while the state's overall economy is not in dire straits, the government's financial health is under considerable pressure. He emphasized that the rising debt is a serious problem that necessitates immediate attention.
Understanding Kerala's Debt Problem
Several factors contribute to Kerala's escalating debt and financial strain:
- Aging Population and Pensions: The state's aging demographic means a growing share of government spending is allocated to pensions, further exacerbated by a retirement age of 56.
- Low Capital Expenditure: Kerala's capital expenditure stands at a mere 1.34% of its GSDP, significantly lower than the national average for states, which is 3.01%. This indicates insufficient investment in long-term assets and infrastructure that could generate future returns.
- Slower Economic Growth: Between 2015-16 and 2024-25, Kerala's real GSDP grew by 5.15%, falling below the national average of 5.9%. While manufacturing saw 13% growth, services, traditionally a growth engine, grew at half the national rate.
- High Unemployment: The state faces a high unemployment rate of 29.8%, considerably above the national average of 12.5%.
- Power Sector Issues: Problems within the power sector also add to the state's financial burden.
Chandrasekhar stressed that borrowing is not inherently problematic, but the crucial aspect is how the borrowed funds are utilized. "If you take debt to use it for your revenue expenditure, use it for areas where there is no return coming, then debt is a problem. It is a serious problem," he stated.
Addressing the Debt Challenge
While acknowledging the need to reduce debt, Chandrasekhar highlighted the Centre's 3% borrowing limit for states, contrasting it with the Union government's own fiscal deficit target of 4.3%. He advocated for a "slide path" for states like Kerala, allowing for a gradual reduction in debt rather than an abrupt cut.
"We should bring down the debt. That is not something which we should leave to the people of succeeding generations," Chandrasekhar remarked, underscoring the intergenerational responsibility. He suggested that the central government should collaborate with states facing severe financial difficulties to devise a phased approach to restore fiscal health.
The former Cabinet Secretary's insights underscore the complex economic landscape Kerala navigates, urging for strategic financial management and a collaborative approach to mitigate its significant debt burden.