Asian Research Journal of Arts & Social Sciences

Aim: The study aims to assess the sustainability of Kerala’s public debt during the period 2019–20 to 2023–24 by examining key fiscal indicators and applying the Domar framework to understand whether the state’s debt trajectory aligns with sustainable fiscal practices.

Study Design: This is a descriptive and analytical study that utilises secondary fiscal data to evaluate trends in Kerala’s debt indicators and interpret their sustainability in relation to the state's economic performance.

Place and Duration of Study: The study focuses on the state of Kerala, India, covering the period 2019–20 to 2023–24, including the phase before, during, and after the COVID-19 pandemic.

Methodology: The analysis incorporates fiscal indicators such as overall public liabilities, per capita debt burden, effective interest rate on debt, inflation rate, and real Gross State Domestic Product (GSDP) growth rate. These variables were used to compute the Domar Gap, defined as the difference between the real cost of debt and real economic growth. The Domar framework was applied to determine whether Kerala’s debt stock tends toward sustainability, focusing on whether the growth rate consistently exceeds the real interest burden. The state’s performance was also compared with the all-state average to contextualise Kerala’s fiscal position.

Results: The findings indicate a significant rise in Kerala’s public debt and per capita liabilities, especially during the pandemic years, resulting in increased fiscal pressure. The Domar analysis shows unsustainable debt dynamics in 2019–20 and 2020–21, when real economic growth fell below the real interest rate on debt. However, a positive turnaround occurred from 2021–22 onward, as economic growth rebounded and the Domar Gap shifted into favourable territory. Despite this improvement, Kerala’s debt indicators remain weaker than the all-state average, highlighting the need for ongoing fiscal discipline.

Conclusion: The study concludes that while Kerala’s debt position has improved in recent years, long-term sustainability depends on maintaining economic growth consistently above the real cost of debt and ensuring prudent borrowing practices. Balancing developmental needs with fiscal consolidation remains essential. Consistent with the theoretical insights of Domar (1944) and Yoshino and Miyamoto (2020), sound debt sustainability for Kerala requires growth-led debt management and disciplined fiscal planning.