THIRUVANANTHAPURAM: As Finance Minister Nirmala Sitharaman gears up to present the Union Budget for FY 2025-26 – Budget 2025, on February 1, Kerala’s anticipations are hinged on both hope and apprehension.
While the state’s demands are significant, their familiarity to the central government underscores a longstanding pattern of financial negotiations that often leave the southern state yearning for relief.
State Finance Minister KN Balagopal, in a press interaction, reiterated Kerala’s well-worn pleas, including the much-debated demand to raise the state’s borrowing limit from 3 per cent to 3.5 per cent of GSDP, a proposition repeatedly stonewalled by the Centre under the Fiscal Responsibility and Budget Management (FRBM) Act.
“Kerala has unique challenges that require exceptional remedies. Our financial stress has been compounded by dwindling central transfers, and we hope the Union Budget addresses these issues decisively,” Balagopal said.
Kerala has proposed a Rs24,000 crore financial package spread over two years to ease its mounting fiscal stress, exacerbated by what it deems an “unprecedented low” in central allocations.
Pre-budget wishlist
However, observers point out that such requests have become a recurring feature of Kerala’s pre-budget wishlist, reflecting deeper systemic challenges in Centre-State fiscal relations.
A Rs5,000 crore package for the Vizhinjam International Sea Port, touted as a strategic asset for India’s economic growth, is also on the list.
Kerala has further urged the Centre to convert the Viability Gap Funding for the port into a grant rather than a loan – a contentious issue the central government has steadfastly rejected in past years.
Equally pressing is Kerala’s demand for a Rs2,000 crore rehabilitation package for victims of the Wayanad landslide disaster, a plea made repeatedly since the calamity.
The state also seeks renewed commitments toward coastal erosion mitigation, GST compensation reinstatement, and relief for Non-Resident Keralites (NRKs) – demands that have largely remained unresolved.
A shift in focus needed?
Balagopal’s remarks included a pointed reminder of national economic challenges. “Reports from NITI Aayog and RBI indicate that financial growth has not met projections. The Centre must focus on measures that put money directly in people’s hands to stimulate demand,” he said, subtly suggesting that Kerala’s demands align with broader economic imperatives.
However, fiscal analysts note that Kerala’s persistent focus on raising its borrowing ceiling under the FRBM Act signals a critical gap in addressing its financial shortfalls through alternative, sustainable revenue models.
While raising the borrowing limit may offer short-term relief, critics argue it risks deepening the state’s debt spiral without structural economic reforms.
Beyond the familiar
Kerala’s wishlist for Budget 2025-26 is not without merit, especially in areas like railway development, human-animal conflict mitigation, climate change initiatives, and coastal rehabilitation.
Yet, the state’s heavy reliance on central grants and its repeated demands for borrowing flexibility raise questions about its capacity for self-reliance and resource optimisation.
As the Union Budget draws near, Kerala’s hope for financial relief remains tempered by the reality that many of its demands have long been dismissed as “oft-repeated” by New Delhi. Whether this year will bring a change in narrative or reinforce the status quo remains to be seen.
This budget could be a pivotal moment for Kerala – not just for what it receives, but for how it rethinks its fiscal strategy in an era of tightening purse strings at the Centre
