THIRUVANANTHAPURAM: Raising the retirement age of state government employees to match that of Union government staff and a shift to 10-year pay revision cycle from the current five years are among the key recommendations in ‘Kerala’s Fiscal Health: A Status Report’, the white paper on the state’s finances, tabled in the assembly on Thursday.
The report underscores the need for tough political choices, calling for sweeping reforms in government salaries, public sector enterprises and the power sector.
The white paper is a mirror held up to the LDF, exposing a decade of its “economic mismanagement,” Chief Minister VD Satheesan told the assembly. “It is not a political document nor an investigative report. It lays out before the common man the fiscal health of the state when the new government assumed office,” he said.
According to the report, Kerala is sitting on outstanding liabilities of Rs 5.07 lakh crore. The new government inherited unpaid arrears worth Rs 48,733 crore, an amount almost equal to an year’s entire market borrowing, from its predecessor. Committed expenditure — salaries, pension and interest payments —consumes 77% of total revenue receipts. Interest payments account for 20.9% of revenue expenditure. State’s capital expenditure is just 1.3% of GSDP, one of the lowest in the country.
Sweeping reforms for public sector enterprises
The inherited arrears include Rs 21,670 crore in unpaid dearness allowance to employees, Rs 14,387 crore in dearness relief arrears to pensioners. The government owes Rs 3,431 crore to banks and contractors.
Raising the retirement age of employees will help the government save about Rs 6,000 crore in retirement benefits, says the report. But former State Finance Commission chairman B A Prakash said it was a bad idea.
“It cannot be viewed as a Rs 6,000 crore saving. It is a deferment and the payment will have to be made after two or four years. Employees close to retirement age would be at the peak of their basic pay. Hence, retaining them will be a large financial commitment,” he said.
Given the large number of educated unemployed youth and the global jobs situation, raising the retirement age is not a wise choice, he said.
On welfare pensions, the report recommended an Aadhaar-linked direct benefit transfer system. This shift will help generate significant savings, it said.
Power sector
The report calls for opening the power sector to private and central public sector investment. An additional 6,000 MW can be generated through solar power and 8,000 MW through hydro-electric projects. The KSEBL lacks resources and experience to deliver this, it said.
Sweeping reforms have been recommended for public-sector enterprises. Loss-making units should be wound up and unused assets should be monetised. A regulatory commission should be set up to fix user charges for metro services. On KIIFB, it recommends bringing the body fully under budgetary control and ordering an immediate C&AG performance audit.
The share of genuine plan spending in total expenditure by the government saw a steady decline — from 23.18% in 2017-18 to 17.55% in 2025-26
Economist K P Kannan described the report as commendable and evidence-based.
“The Rs 48,733 crore in inherited arrears and KIIFB’s repayment burden are a serious blow to the new government,” he said. He called for a healthy public discussion to find solutions. “The state will suffer if opposition parties resort to cheap political drama instead of constructive engagement,” he said.
According to Prakash, the report lacks a proper roadmap to help the government emerge from the crisis. The state requires a one-year emergency plan and a long-term roadmap with specific goals, he said.
Treasury balance
The white paper showed that the treasury balance as on March 31, 2026 was Rs 6,322 crore. By the time the new government assumed office it had fallen to Rs 2,212 crore.
Inherited arrears burden
DA arrears - state employees & teachers: L21,670 crore
DA arrears - university & college staff: L1,500 crore
DR to pensioners L14,387 cr
Contractor/ bill discounting dues L3,431 cr
Health scheme claims (SHA/KASP) L2,017 crore
Supplyco dues: L2,893 crore
KMSCL dues: L476 crore
SC,ST scholarship dues- L377 cr
LSGD third instalment- L1,982 cr
Total - L48,733 cr
PSE accumulated losses
2021-22 L42,930 cr
2022-23 L54,475 cr
2023-24 L78,069 cr
2024-25 L72,851 cr
Source: Kerala’s Fiscal Health: A Status Report