Rising debt and deficit: Tough road ahead for new government

THIRUVANANTHAPURAM: The new government, which will come in with many promises and high expectations, is likely to face serious financial pressure. Pending expenses such as salary revision, welfare pension increase, dearness allowance (DA), and leave surrender arrears, along with KIIFB loan repayments and a growing fiscal deficit, are major concerns. In addition, financial restrictions from the central government and cuts in borrowing limits could worsen the situation.

The second Pinarayi government began after taking on an additional financial burden of around Rs 25,000 crore due to salary revision. It struggled to clear salary arrears, while DA payments were also delayed. To manage the situation, DA was granted without retrospective effect. With tighter financial controls from the Centre, the government even faced situations where salaries could have been delayed.

Due to the severe financial crisis, the government completed its term without releasing around Rs 2,700 crore meant for local bodies. Cuts in borrowing limits by the Centre also led to a shortfall of about Rs 7,000 crore by the end of the financial year.

Revenue deficit may reach Rs 42,000 crore

• According to CAG estimates, the financial situation in 2026-27 could be worse than in 2025-26:
• The total revenue deficit in 2025 was Rs 28,227 crore. By November 2026, it had risen to Rs 37,788 crore and is expected to reach Rs 42,000 crore by the end of the financial year.
• Government employees are yet to receive five instalments of DA, amounting to 13%, which may not be possible to pay under current conditions.
• More than Rs 20,000 crore will be needed for salary revision, and around Rs 10,000 crore to clear pending employee benefits.
• KIIFB has taken up infrastructure projects worth Rs 1.24 lakh crore. The current monthly repayment is Rs 3,200 crore, which could triple in the future.
• Though tax revenue increased to Rs 83,731 crore, total expenditure has reached Rs 1.92 lakh crore, forcing the state to depend more on borrowing. The Centre has not yet fixed the borrowing limit for this year, giving only a temporary approval of Rs 4,700 crore.
• An increase of Rs 10,000 crore in the state’s share from the divisible pool, as per the Finance Commission recommendation, offers some relief. The state’s share has risen from 1.92% to 2.38%.

Finance Minister K.N. Balagopal said that the second Pinarayi government completed its term by building a strong financial base, which will benefit the new government.