The Central government has informed the Supreme Court that Kerala’s ongoing financial crisis is the result of poor financial management of the state government.

Responding to the suit petition filed by the Kerala government at the Supreme Court against the cap set by the Union Government on Kerala’s borrowing limit, the Central government informed the top court that interest payments on Kerala’s debt are soaring and the state will eventually plunge into a deep financial crisis.

Along with Punjab and West Bengal, Kerala is the state with the worst fiscal management in the country, the Centre has stated in its note to the apex court.

The Central government also informed the Supreme Court that it had allocated more funds to Kerala than recommended by the Finance Commission and that the fiscal aid was provided without any due.

In its note to the Supreme Court, the Central government said the expenditure of the Kerala government is increasing considerably. Between 2018-19, the expenditure of the state was pegged at 78 per cent of its revenue income.

In 2021-22, this rose to 82.4 percent. This is the highest rate for any state in the country. During the same period, the fiscal deficit also increased significantly. The fiscal deficit increased dramatically from 2.4 per cent in 2017–18 to 3.1 per cent in 2021–2022, it said.

The note also says that the state government’s borrowing partners, Kerala Social Security Pension Limited and KIIFB, have no independent sources of revenue.

The 14th Finance Commission recommends that interest payments never exceed 10 percent of total revenue. However, in Kerala’s situation, the interest the state is currently paying will come to 19.98 percent of revenue.

The Centre further emphasised that the state is utilising the borrowed funds to pay for ongoing expenses, such as paying salaries and pensions, rather than investing them in profitable ventures, the note submitted to the apex court says .

The Central government blamed Kerala’s borrowings outside of the budget as well. It should be mentioned that, from 2021 to 2022, government allocation made up 93.6 per cent of KIIFB’s total income; the interest from the fund board’s assets made up the remaining 6.40 percent. Additionally, the note mentioned that KIIFB will get the funds collected from the motor vehicle tax and petrol cess.