'Kerala has a serious debt problem': Former Cabinet Secretary on state's finances

Kerala does have a serious financial problem, with public debt at 35% of GSDP - the highest among states - and the government not investing enough in capital expenditure, Kerala State Planning Board Vice Chairman K M Chandrasekhar said.

Chandrasekhar said the state's overall economy was not in such bad shape, but the government's finances were under pressure.

"When you talk about the financial situation, what we spoke about was the financial situation of the government, not really the financial situation of the state. The state is not in such a bad way, but the government certainly is," he said while speaking at India Today South Conclave.

Chandrasekhar, a former Union Cabinet Secretary, was appointed Vice Chairman of the Kerala State Planning Board in July 2026.

Why Kerala has a problem

The former cabinet secretary said pensions were taking up an increasing share of government spending as Kerala's population ages. The state's retirement age remains 56. He also pointed to low capital expenditure. Kerala's capital expenditure was 1.34% of its GSDP, compared with 3.01% for all states, he said.

The state's real GSDP grew 5.15% between 2015-16 and 2024-25, below the national average of 5.9%.

Manufacturing grew 13% during the period, compared with 17.5% nationally. Chandrasekhar said manufacturing had not done badly because many small industries had adopted new technologies.

But services, which had previously driven Kerala's growth, have grown at half the national rate in recent years, he added.

The state also faces problems in the power sector and has high unemployment. Chandrasekhar put Kerala's unemployment rate at 29.8%, compared with 12.5% nationally. "So there are many problems that we face and which we will have to handle," he said.

'Debt is a serious problem'

According to the former secretary, Kerala's public debt has surged to 35% of GSDP, making it the highest among states.

"The issue is that debt has undoubtedly surged. It is the highest in the country today. 35% of GSDP is the highest in the country. So we do have a problem," he said.

He said borrowing itself was not necessarily the problem. The concern was how the money was used. "I don't see why a controversy should arise regarding debt. Because debt is taken by all countries," Chandrasekhar said.

"The point is that we need to use the debt productively to generate the income required to pay it back. Instead, 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."

Kerala wants more time to cut debt

Chandrasekhar said the Centre has set a 3% limit for states' borrowing, while its own fiscal deficit target is 4.3%.

He said Kerala did not want to borrow heavily but argued that the Centre should also follow a path to reduce its own deficit.

"We don't want to borrow very heavily. But at the same time, we do believe that when you impose a condition, you should impose it on yourself also," he said. "While 3% is there for the states, it's 4.3% for the central, and they have a slide path. It would be appropriate if we also get a slide path."

Chandrasekhar said Kerala should bring down its debt and not leave the burden to future generations. "We should bring down the debt. That is not something which we should leave to the people of succeeding generations," he said.

But he said the process would have to happen gradually. "We will need to go phase by phase, and it would be good for the government of India to sit with states which are in real trouble like ours and see how over a period of time, we can bring it back to shape."