Finance Minister K. N. Balagopal presented the ninth consecutive budget of the LDF government in Kerala, marking the last full budget of the current administration.
The budget reflects the state’s resilience in overcoming economic and political challenges while setting the foundation for a future driven by knowledge, investment, and innovation.
Over the past nine years, the government has navigated internal and external crises, including demonetisation, the hasty implementation of GST, multiple natural disasters, the Nipah virus outbreak, and the COVID-19 pandemic. These challenges tested Kerala’s economic stability, yet the government’s handling of them contributed to the LDF’s re-election in 2021.
Internationally, the decline of globalisation, increasing trade wars, and economic slowdowns have created further instability. While developed nations have managed to maintain marginal GDP growth, the overall global economic scenario remains unpredictable.
Kerala’s fiscal crisis stems from its unique development strategy, which prioritised human capital production over tradable goods. This approach, while benefiting the nation through remittances and skilled migration, has left the state with a rising revenue deficit and dependence on borrowing.
Despite Kerala’s contributions to national development, its share in the divisible tax pool has dropped significantly—from 3.8 per cent during the 10th Finance Commission (1995-2000) to 1.9 per cent under the 15th Finance Commission (2021-2026). This decline has exacerbated Kerala’s fiscal stress, worsened further by the growing vertical fiscal imbalance post-GST implementation.
Nevertheless, Kerala has seen a notable increase in its tax revenue. The state’s tax revenue as a share of total revenue receipts stands at 61.22 per cent, compared to the national average of 50 per cent.
Similarly, Kerala’s own revenue share has reached 74.5 per cent, significantly higher than the national average of 58.4 per cent for 2024-25 (BE). Despite fiscal constraints, the budget size has steadily expanded—from Rs 66,992 crore during the previous UDF government (2011-2016) to Rs 1,15,435 crore in the first LDF term. Over the past four years, this has further risen to Rs 1,66,075 crore, reaching Rs 1,98,582 crore in the latest budget.
Kerala is now poised for a transformative leap forward, anchored in a new development model based on "knowledge, investment, and compassion-driven development."
One of the key responses to conservative fiscal policies was the establishment of the Kerala Infrastructure Investment Fund Board (KIIFB) to enhance capital expenditure. The government’s commitment to social welfare has also led to a 2.5-fold increase in social security pensions, now set at Rs 1,600 per month.
This vision extends to fostering an innovation-driven economy through initiatives led by the Kerala Development and Innovation Strategic Council (K-DISC).
The creation of Space Park, Science Park, Fab Lab, an Innovation Centre for Graphene, Digital University, and Blockchain Academy highlights Kerala’s push towards becoming a hub for Industry 4.0 technologies such as artificial intelligence, the Internet of Things, blockchain, and robotics.
Additionally, the budget builds on previous investments in infrastructure, with a strong focus on the Vizhinjam Port and projects such as the gas pipeline, National Highway, Hill Highway, Coastal Highway, and North-South Waterways. These developments aim to establish Kerala as a major innovation and logistics hub.
However, concerns remain regarding revenue mobilisation. “User fees could have been introduced in the areas of education and health,” an expert noted. “Kerala, with a higher life expectancy, has the lowest pension age in the country. Raising it to 60 could ease fiscal pressure.”
There are also calls for improving land tax collection, with comparisons drawn to West Bengal, which generates over four times Kerala’s revenue despite having only 2.3 times the land area. Additionally, a shift in approach towards the public sector is needed, though political resistance remains a challenge.
While Kerala’s budget signals a forward-looking approach, the road ahead will require bold reforms and sustained public support to realise its vision of an innovation-led economy.
(The writer is the director of Gulati Institute of Finance and Taxation, Thiruvananthapuram..)