KOCHI: Kerala finds itself among the more fiscally stressed states in the country, according to the latest Fiscal Health Index (FHI) for 2023-24 released by the NITI Aayog. Ranked 15th among 18 major states, Kerala falls in the “aspirational” category, placing it alongside states grappling with persistent financial pressures.
The FHI of 18 major states and 10 Northeastern states was calculated using data from the Comptroller and Auditor General of India (CAG). The study evaluates states across five key sub-indices: quality of expenditure, revenue mobilisation, fiscal prudence, debt index, and debt sustainability.
The report notes that higher-ranked states tend to demonstrate stronger fiscal discipline and better resource mobilisation, while lower-ranked states are marked by higher non-developmental spending and less sustainable fiscal patterns.
Lekha Chakraborty, professor at the New Delhi-based National Institute of Public Finance and Policy, said Kerala’s position on the index highlights a structural paradox at the core of its development model. “The state’s score has shown no meaningful improvement from 25.3 in 2022-23 and has declined from an average of 30.8 in the 2014-17 period,” she pointed out.
“This stagnation is not cyclical but reflects deep-seated rigidities in expenditure composition and fiscal space. The report’s state profile explicitly frames this as ‘the challenge of balancing strong social and developmental commitments with limited fiscal flexibility,’” she said.
According to the report, the most striking concern is how Kerala spends its money. A large share of its budget goes towards salaries, pensions, and interest payments.
It points out that Kerala’s capital spending is among the lowest in the country, indicating that the state is not creating enough assets to drive future growth.
The report also flags relatively high debt levels, with a growing share of revenue being used to service interest payments.
Lekha points out that a pillar-wise reading of the index is crucial to understanding why Kerala remains near the bottom.
‘Kerala’s ‘quality of expenditure’ lowest among major states’
“Revenue mobilisation (score 47) is a relative strength — placing Kerala in the frontrunner category — driven by steady own-tax buoyancy from SGST and sales taxes, and a respectable own-revenue-to-expenditure ratio (around 57).
This clarifies the doubts of many economists who accused Kerala of an ‘ugly’ tax-to-GDP ratio. Yet this buoyancy is insufficient to offset weaknesses in other pillars of the index. Quality of expenditure — another of the five pillars — collapsed to a mere 4.1, the lowest among major states,” Lekha Chakraborty said.
She added that Kerala’s high human development outcomes were built on sustained social-sector spending, which has now hardened into inflexible fiscal commitments.
“If you quantify that, Kerala loses, as its articulation of why it is at the ‘bottom’ needs to be heard with a sensibility beyond rigid fiscal rules,” she said.