With assembly elections just around the corner, Kerala Finance Minister K N Balagopal on Thursday presented his budget for 2026-27 with a clear “please-all’ approach, hoping to shore up the ruling LDF’s electoral fortunes. The welfare-heavy budget – last of the second Pinarayi Vijayan government – rolled out proposals across segments, from women and students to frontline workers and government employees.
Balagopal announced the setting up of the 12th Pay Revision Commission for government employees, promised an assured pension scheme of 50% of the last basic pay and increased the honorarium for Asha and anganwadi workers and pre-primary teachers, but pegged the increased spending on revenue, which experts termed highly optimistic targets.
In his sixth and longest budget speech, Balagopal pegged the fiscal deficit at 3.40% of the GSDP, but stopped short of detailing how the cash-strapped state will finance the additional expenditure. Experts said the budget appears to hinge largely on an unrealistic 14.15% GSDP growth projection.
Signalling a forward-looking response to demographic change, Balagopal also announced an ‘Elderly Budget’.
“The current budget is being presented with the satisfaction that almost all the promises have been kept,” Balagopal said, adding that “today’s Kerala is much different from what it was a decade before. (The first Pinarayi Vijayan government assumed power in 2016.) Kerala has created ‘a new normal’ in almost all sectors. There has been amazing and proud progress in all walks of life, incomparable to the old normal.”
The budget outlined growth drivers, including a new ‘rare earth corridor’ along the coast from Vizhinjam port to Chavara and onward to Kochi. An allocation of Rs 100 crore was announced to establish a Rare Earth Critical Minerals Mission.
Another Rs 100 crore has been earmarked for preliminary work on the Regional Rapid Transit System (RRTS) from Thiruvananthapuram to Kasaragod, replacing the SilverLine project. On the welfare front, the budget announced several benefits. Under the Chief Minister’s ‘Sthree Suraksha Scheme’, a monthly assistance of Rs 1,000 will be provided to women, including trans-women, aged between 35 and 60. Around 31 lakh women are expected to benefit.
‘Budget socially generous and tactfully balanced, but economically fragile’
It also proposed an accident and life insurance scheme for students from Class 1 to 12 and announced free undergraduate education in arts and science colleges. Monthly wages of pre-primary teachers, Saksharatha Preraks, anganwadi and Asha workers were increased by Rs 1,000 each, while anganwadi helpers will receive an additional Rs 500.
Prof K J Joseph, Director of the Gulati Institute of Finance and Taxation (GIFT) and a key advisor to the finance minister, expressed confidence that Kerala’s GSDP would grow by 14–15% in 2026–27, driven by the foundations laid in recent years. “Further, we expect industry and the new initiatives, such as the rare earths mission, to provide the required boost to the state’s economy,” he said. Balagopal claimed the rare earth initiative would make Kerala “the permanent magnet hub” of the country, with investments of Rs 42,000 crore and creation of 50,000 jobs.
However, economists flagged concerns over the budget’s assumptions. IIM Kozhikode professor Rudra Sensarma said the optimistic 14% nominal GSDP growth projection makes the deficit estimates “ambitious”. “Once growth falls short, fiscal and revenue deficits are likely to overshoot targets, pushing the state back onto an unsustainable debt path. In sum, the budget is socially generous and tactfully balanced, but economically fragile,” he said.
Last year’s budget had projected a nearly 12% GSDP growth, but the final figure stood at just 6.19%. Prof Sensarma was also critical of the assured pension scheme. Terming it “alarming”, he said it was “modelled on existing bad ideas such as the Centre’s unified pension scheme and Tamil Nadu’s TAPS”, and warned it could turn fiscally disastrous, especially given Kerala’s high share of PSC recruitments.
On the positive side, Kerala’s debt-to-GSDP ratio declined to 33.44% from 38.47% in 2021, a nearly five- percentage points drop in four years, which Balagopal said keeps the state’s debt within bearable limits.
What the finance minister chose not to spell out, however, is the eventual cost of implementing the 12th Pay Commission recommendations. The 11th Pay Revision, implemented from April 2021, had severely strained state finances, with salary expenditure jumping by Rs 17,012.62 crore in 2021–22 — a 59.14% increase over the previous year.