kerala
Kerala veers from impressive social gains to mounting fiscal strain
Thiruvananthapuram, India — Once lauded for its high social indicators and robust welfare architecture, Kerala is now facing deepening fiscal stress even as it underscores its developmental achievements.
Over recent years, the state has continued to record enviable outcomes in human development, public health, education and rural programmes, aligning with its long-standing emphasis on social welfare. Kerala’s economy grew an estimated 6.19 % in real terms in 2024–25, with gains across sectors including construction, services and fisheries, and a modest rise in own tax revenues. Yet this growth coexists with persistent financial pressures, as revenue receipts rely heavily on non-traditional sources such as lotteries and alcohol, and central transfers have declined sharply.
Fiscal indicators paint a mixed picture: while total revenue receipts inched up slightly in 2024–25, fiscal deficits remain significant, and debt-to-GSDP ratios have risen, prompting the state to emphasise resilient financial strategies. Kerala also allocates a large share of its budget to social services and pensions — expenditures that are increasing with its ageing demographic and shrinking working-age population.
The Reserve Bank of India has flagged the widening fiscal divergence between ageing states like Kerala and younger, more revenue-generating counterparts, pointing to higher pension costs and a shrinking tax base — trends that exacerbate budgetary constraints.
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Political debate around fiscal policy is intensifying ahead of the state assembly elections. Critics — including religious leaders and opposition parties — have challenged the government’s reliance on alcohol revenue and questioned healthcare financing, while calls grow for structural reform and fresh revenue streams.
As Kerala grapples with sustaining its social gains, the state’s fiscal story reflects a broader dilemma: balancing welfare commitments with economic viability in a changing demographic and fiscal landscape.
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