Recently RBI has categorized Kerala among five highly stressed states. This shows that Kerala is one of the worst financially managed state. The condition was so severe that government is not able to pay salaries, pension, provident fund etc. to government employees.

Some Facts related to the financial position of the state:

• The revenue deficit of Kerala as a percentage of state gross domestic product be 3.17% for 2021-2022, higher than all state average of 0.46%. (In simple terms, it means that Kerala's government spent more money than it earned in the 2021-2022 fiscal year, and this deficit was 3.17% of the state's total economic output (Gross Domestic Product or GDP). This percentage is higher compared to the average deficit percentage for all states, which is 0.46%. Essentially, Kerala's deficit is relatively higher compared to other states.)
• The fiscal deficit rate of Kerala to be 4.94%, compared to average of all states is 2.80%.(It means Kerala's fiscal deficit rate of 4.94% means its government borrowed money equivalent to nearly 5% of its economic output (GDP) in 2021-2022, which is higher than the average borrowing rate of all states, which stands at 2.80%.)
• Now the economic facts say that the revenue deficit must be almost equal to zero, as it shows the burden of the state, as this deficit have no return value.
• Now the recent economic review of Kerala 2023, tabled in the Assembly said that the state has effectively reduced its revenue deficit to 0.88% from 2.23% of GSDP( Gross State Domestic Product) in 2021-22.

From all this we can say that the state of Kerala hasn’t been able to earn higher profit or earn higher share of revenue from the taxes. This was the reason that RBI has categorized Kerala as worst financially managed state.

The Developments in the current economic scenario of the state :

• Kerala government went to Supreme Court to urge central government to relax the borrowing limit, and also urge centre to give the relief package to Kerala to deal with the current situation.
• Supreme Court also urged the central government to provide the relief package and consider rescuing Kerala and provide a bailout package to tackle the financial crisis of the state.

Problem of central government to issue bailout package:

• If Kerala will be considered to for providing the bailout package there will be a cry from other states to consider them in the bailout package too.
• Now the central government provide equal bailout package to all the states to treat all the states equal.
• State of Kerala has accepted centre’s proposal to borrow an additional ₹ 13608cr. For the time being, but the request for extra ₹ 19000cr.was not met.
• The condition in the state of Kerala was so worse that the government is short of providing the salaries, pensions to the government employees.

The amendments in Fiscal Responsibility and Budget Management act in 2018 imposed a net borrowing ceiling on states by limiting borrowings from all sources including the open market operations.

Now according to Kerala government these amendments were against the fiscal federalism.

• There were 14 occasions on which different state governments approached central government for the bailout package but their demand was not approved.
• In case of the Kerala the central government is not approving the demand because of the fact that Kerala need more than 100% of their budget package and this mismatch is huge.

Recently the central government has sanctioned ₹ 21253 cr. to tackle the Kerala’s economic crisis.

 Now what does this sanction mean? This mean that state of Kerala got the permission to borrow the amount up to ₹ 21253 cr.

The significance of this is that Kerala will get help and pay the salaries to the government employees and also start the developmental projects which will help to get rid of the current economic situation.