Kerala could face a huge debt crisis soon: RBI

Finance    23-Jun-2022
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New Delhi, Jun 23: A Reserve Bank of India article has named Kerala among the five highly stressed states with high indebtedness requiring urgent corrective measures.

RBI Kerala 
The article by a team of economists under the guidance of deputy governor Michael Debabrata Patra comes in the backdrop of the Sri Lankan crisis and is to “put the spotlight on fiscal risks confronting state governments in India, with emphasis on the heavily indebted states”.
The report said Kerala, Rajasthan, and West Bengal are projected to exceed the debt-GSDP ratio of 35% by 2026-27. “These states will need to undertake significant corrective steps to stabilize their debt levels,” it said. The article lists 10 states which account for around half of the total expenditure by all state governments. Taking into account the warning signs based on all the indicators, the study picked five highly stressed states — Bihar, Kerala, Punjab, Rajasthan, and West Bengal. The article said Kerala has exceeded the debt target set by the 15th Finance Commission for 2020-21. Kerala and two other states — Rajasthan and West Bengal — are projected to surpass the commission’s targets for debt and fiscal deficit in 2022-23. 
Kerala also figures in the list of states whose share of revenue expenditure in total spending is around 90%. This results in poor expenditure quality. Committed expenditure, including interest payments, pensions, and administrative expenses, accounts for over 35% of the total revenue expenditure in five states, including Kerala, leaving limited fiscal space for undertaking developmental expenditure, the article said.