Kerala's debt trap: Govt and people alike, borrowing beyond means

THIRUVANANTHAPURAM: The state government and the people of Kerala are competing with each other when it comes to taking loans. Kerala ranks ninth among the ten Indian states with the highest public debt. But when it comes to personal debt, the people of Kerala are in the third position. Around 29.9% of households in the state are in debt. Home loans and vehicle loans have doubled in the last five years, while education loans have increased by 30%.

Home loans account for 45% of total loans, education loans 18%, personal loans 27%, and vehicle loans make up the rest. The number of people defaulting on loan repayments has increased by 18%, indicating rising financial instability in Kerala. A report prepared by the Central Statistics Office warns that not only the state government but also the people are trapped in debt, and this trend is worrying.

In North India, borrowing is not directly linked to lifestyle, but in South India, taking loans has become part of daily living. In Kerala, people strongly prefer taking loans to afford better houses, the latest vehicles, quality education, foreign travel, and medical security.

Government also heavily dependent on loans

1. Welfare pensions, medical aid, KIIFB projects, and even paddy procurement are financed using loans. Housing projects like LIFE Mission also depend on loans. Salaries and pensions are paid using borrowed money.
2. The state spends around Rs 15,000 crore every month, out of which Rs 3,000 crore comes from loans. Despite this, the government has announced new commitments like increased welfare pensions, which may add more than Rs 10,000 crore in liabilities. This comes at a time when the Finance Minister has repeatedly said that GST revisions will reduce the state’s income by Rs 10,000 crore.
3. The government has been unable to clear the dearness allowance arrears of employees. Health insurance for state employees is not functioning effectively, and salary revision arrears have not been paid. Half of the arrears will be merged with the PF account by the end of this financial year, and the rest can be withdrawn after one year — a promise repeated for the third time.

The state has permission to borrow Rs 29,529 crore until December. Out of this, Rs 26,000 crore has already been borrowed.

Household debt (Home loans)
Andhra Pradesh – 43.7%
Telangana – 37.2%
Kerala – 29.9%
Tamil Nadu – 29.4%
Karnataka – 23%
Delhi – 3.2%
Chandigarh – 6.5%

States with highest debt (FY 2025, in lakh crore)
Tamil Nadu – 8.3
Uttar Pradesh – 7.7
Maharashtra – 7.2
West Bengal – 6.6
Karnataka – 6.0
Rajasthan – 5.6
Andhra Pradesh – 4.9
Gujarat – 4.7
Kerala – 4.3
Madhya Pradesh – 4.2