The Union Budget sparked anger in Kerala over the Centre’s “continued neglect” of the State on the fiscal front. For some time now, there has been deepening distrust between Left Front-ruled Kerala and the Bharatiya Janata Party (BJP) government at the Centre in the financial realm. The Kerala government has repeatedly accused the Centre of initiating lopsided policies that have worsened the imbalances in the sharing of revenue resources and of weakening cooperative federalism.
The CPI(M)-led Left Democratic Front (LDF) government and the Congress-led United Democratic Front (UDF) criticised the Budget for “ignoring” the State. Predictably, the Kerala unit of the BJP was quick to describe the Budget as a windfall for Kerala. But its narrative was drowned in the controversy which erupted over Union Minister George Kurian’s remark that if the State wanted more funds, it should perhaps declare itself backward in terms of infrastructure, education, and social welfare so that the Finance Commission can make helpful recommendations.
Apart from demanding again a ₹24,000 crore special economic package for overcoming financial distress, the Kerala government also pleaded for a ₹2,000 crore package for relocating the survivors of the landslides that occurred in July 2024 in Wayanad, and for ₹5,000 crore of special assistance for the Vizhinjam port project, which it calls a game-changer for maritime trade. These requests were ignored.
Kerala’s Finance Minister K.N. Balagopal described the Union Budget as “extremely disappointing” and said that it lacked a pan-India perspective that was sympathetic to the diverse needs of the States. Expectedly, the State Budget presented by him on February 7 allocated the first tranche of ₹750 crore for the landslide-affected people of Mundakkai and Chooralmala in Wayanad. The Post Disaster Needs Assessment document prepared by experts had estimated the cost of post-landslide reconstruction and rehabilitation to be ₹2,221 crore.
The Railway Budget, too, left the State disappointed. Although Kerala has been allocated ₹3,042 crore for developing rail infrastructure, none of the projects specifically demanded by it, including long-pending ones such as the Nilambur-Nanjangud line or the Sabari rail, were announced.
The Left’s narrative that Kerala has been punished yet again for its hard-earned progress in sectors such as education, health, and social welfare was inbuilt in the criticism. Chief Minister Pinarayi Vijayan again accused the Modi government of failing to honour the federal principles upheld in the Constitution.
This is the latest episode in the long-drawn-out struggle between Kerala and New Delhi over what the southern State describes as its dwindling allocation from the divisible pool and unfair curbs on borrowings. Kerala had moved the Supreme Court last year, challenging the Centre’s decision curtailing its borrowing capacity. Before the 16th Finance Commission’s tour of Kerala in December 2024 for drafting recommendations, the Left government hosted a conclave of Finance Ministers of non-BJP-ruled States for establishing common ground on shared fiscal grievances.
Kerala has repeatedly drawn attention to its divisible tax pool share that has shrunk from 3.88% under the 10th Finance Commission to 1.92% under the 15th Finance Commission. In the face of diminishing central transfers, Kerala has, however, managed to improve its own-tax and non-tax revenues, though it faces tough financial questions that have no easy answers. The NITI Aayog Fiscal Health Index 2025 placed Kerala among “aspirational States” that have “consistently” faced fiscal challenges over the past nine years. “These States face high debt, large interest payments, weak revenue generation, and inefficiencies in capital expenditure, with reliance on non-tax revenue impacting their fiscal health and rankings,” said the report, which ranked States for the 2023 fiscal. It termed “low quality of expenditure” and “debt sustainability” as two of the significant challenges in Kerala’s path.
It remains to be seen how the 16th Finance Commission, which is expected to submit its recommendations by October 31, 2025, will play out for Kerala and its tax devolution concerns. That said, it is evident that delicate negotiations on the financial front with the Centre will continue to be the State’s top priority, at least in the short term.
Published – February 13, 2025 01:26 am IST
