In deep financial distress, Kerala borrows ₹3,500 cr to pay salaries

The Communist-ruled state has been facing its worst financial crisis, exacerbated by the COVID pandemic

For Kerala, it is a Catch-22 situation: Should it save lives or protect livelihoods.

If fighting surging COVID cases was not enough, the Pinarayi Vijayan government in Kerala was forced to borrow Rs 3500 crore on Wednesday (September 1) to dispense salaries and pensions, reports

Kerala is facing one of its worst financial crises as public debt rose to over 36 per cent of the state GDP. But the disaster has been unfolding for quite some time. Between 2015 and 2019, Kerala’s revenue plunged from 61 per cent to 55 per cent. The COVID pandemic that followed has only worsened the state’s financial health.

This time the Kerala government borrowed the sum from the open market, facilitated by the Reserve Bank of India (RBI), at an incredibly high rate of 7.06 per cent. The state has availed Rs 2000 crore at an interest rate of 7.04 per cent with a repayment period of 13 years and Rs 1500 crore at 7.06% interest rate for 18 years. So far, this year, Kerala has borrowed Rs 15,000 crore.

In June last year, the state took a loan of Rs 1,000 crore at an interest rate of 6.55% for 10 years and Rs 500 crore at 5.44% for four years, again through RBI’s bond auction.


Kerala has been struggling to contain the COVID pandemic even as the rest of the country is headed towards herd immunity. India logged 43,034 cases on Tuesday (August 31), while Kerala contributed a whopping 30,198 cases to the national tally. The state’s inability to check spiralling cases and consequent lockdowns have had a negative impact on its economy.

Also read: Report: Irrespective of vaccination, you can be a silent COVID carrier

For Kerala, it is a Catch-22 situation: Should it save lives or protect livelihoods. In some districts, the average test positivity rate (TPR) is above 15 per cent. The suicide rate too has gone up with small-time traders and farmers accounting for most deaths. In the last two months, Kerala reported more than 30 pandemic-induced suicides.

Kerala Finance Minister K N Balagopal said a few days back that the state needs an “out-of-the-box” idea to tide over the present crisis.

Also read: Initiate smart, strategic lockdown strategy, Health Ministry tells Kerala

However, the state is in no mood to cut expenses. “This is not the right time to think of fiscal corrections, and there is no question of us cutting down on spending. Rather, this is the time to think out-of-the-box, because as a democratic government we’ve to ensure the livelihoods are protected, which demands that we continued to spent so that economic activity doesn’t get stalled further and shrink an already-ravaged economy,” Balagopal told PTI in an interview some days back.