For Kerala Finance Minister K N Balagopal, the final budget before the assembly elections was expected to be a high-wire act. While the state’s frail economy demanded that he be prudent, political compulsions required him to be populist. So unsurprisingly, instead of consolidating the fragile recovery he had carefully charted over the past few years, Balagopal chose to wobble at a critical moment, conceding ground to electoral pressures. The decision to announce a new pay commission, in particular, risks derailing hard-won fiscal gains. Another blow would be the assured pension scheme ensuring 50 percent of the last basic pay as the maximum pension.
The budget arithmetic is precarious and is premised on highly optimistic revenue assumptions. The estimates for the state’s own tax revenue as well as its share in central taxes and duties appear ambitious, especially when juxtaposed against the figures for the current fiscal. The budget speech leaned heavily on the narrative of “central neglect”. By attributing fiscal stress to reduced borrowing limits and a shrinking share of central taxes, the minister framed the crisis as a struggle for federal rights rather than a consequence of structural imbalances within the state’s finances.
The warning signs are visible in the numbers. Salaries, pensions and interest payments together account for a staggering 76.66 percent of the total revenues in 2025-26 and are projected at 71.38 percent in 2026-27. This leaves little room for manoeuvre. It’s a given that as committed expenditure rises, the flexibility to spend on development, capital investment and growth-oriented sectors shrinks.
To his credit, Balagopal has formally adhered to fiscal discipline. Despite enhanced welfare spending, the deficit has been pegged at 3.4 percent, lower than the 3.78 percent estimated for the current year. Kerala’s debt-to-GSDP ratio, now at 33.44 percent, has also improved from a high of 38.47 percent in 2021. This consolidation, however, remains fragile and heavily contingent on revenue buoyancy and expenditure restraint—both of which are now under strain.
The budget stands out as a triumph of political optics over fiscal accountability. Wage hikes for pre-primary teachers, Asha workers, Saksharatha Preraks and noon-meal workers are intended to reinforce the LDF government’s welfare credentials at a politically sensitive moment. It remains to be seen if these are enough to overcome the perceived anti-incumbency sentiments and hand the CPI(M)-led front an unprecedented third successive term.