Despite the massive political mandate for the new government, its first budget offered limited room for radical departures due to the commitments and fiscal constraints inherited from the previous regime. V D Satheesan’s maiden budget had to traverse a difficult passage between the promise of a New Age Kerala and the realities of the state’s finances.
Budget Approach
This perhaps explains his approach: Opening new vistas for development while offering some directly beneficial welfare measures, even as he settled for a smaller budget in both income and expenditure, alongside a marginal increase in public debt.
New Development Vistas
The new vistas outlined by the chief minister, who also holds the finance portfolio, are indeed welcome. Chief among them is the development of Kerala’s maritime economy, once the backbone of the state’s prosperity. To this, he added a vision for nurturing aviation and space-related industries.
These sectors offer the prospect of easing the pressure on scarce land resources and an overburdened road-based transport system. They also hold out the promise of stronger links, not only with the rest of India via coastal waters, but with the world beyond, including the Persian Gulf countries.
Yet the allocations announced are largely nominal when compared to the scale of investment needed to build such a blue economy. What remains unspoken is the government’s expectation of attracting private capital, possibly through public-private partnership models. The public, however, is yet to see a master plan, let alone detailed feasibility studies that would allow informed scrutiny of these ambitious proposals.
Fiscal Constraints
The budget’s downside lies in the severity of Kerala’s fiscal constraints. The chief minister mentioned the huge arrears left by the outgoing government, including repayment obligations linked to KIIFB and Kerala Social Security Pensions Ltd, together amounting to Rs 87,012 crore.
On the income side, he noted that the previous budget had anticipated Rs 20,500 crore in central revenue deficit grants that are no longer forthcoming. As a result, projected revenue has been reduced to Rs 1,69,646 crore, down Rs 13,326 crore from the budget presented in January by K N Balagopal.
Expenditure has correspondingly been cut to Rs 2,05,002 crore, a reduction of Rs 12,557 crore from the earlier estimate. Public debt, meanwhile, is projected at Rs 52,364 crore, an increase of Rs 986 crore.
Tax Revenue Concerns
More disappointing is the absence of a strong commitment to improving tax and non-tax revenue mobilisation. Citizens are entitled to ask why Kerala, one of India’s leading states in per capita consumption, does not rank among the top states in per capita revenue collection.
The chief minister could have committed the government to raising state revenue to at least 10% of state income, roughly the level achieved in the early 1990s. Instead, his budget estimate for Own Revenue stands at a mere 7.39% of state income, meaning the state collects just Rs 7.39 for every Rs 100 of income generated.
Revised accounts for 2025-26 under the previous government show an even lower figure of 7.18%. Had the government targeted a 10% ratio, it could potentially have generated an additional Rs 42,518 crore. A 2022 government test-purchase survey had found that 45% of establishments in Kerala conducted business without issuing bills.
(The author is a development economist)
