Published Jan 28, 2026 | 7:34 PM ⚊ Updated Jan 28, 2026 | 7:34 PM
Kerala Finance Minister KN Balagopal (X)
Synopsis: Despite severe financial constraints imposed by the Union government, the state has set new directions in economic development while safeguarding welfare commitments and public investment. However, the Review made it clear that Kerala’s capacity to finance productive investment was being increasingly constrained by what it termed a “highly imbalanced federal fiscal structure”.
Even as India’s economic growth lost momentum in 2024–25, Kerala managed to sustain a relatively stable growth path, the Economic Review 2025 tabled in the state Assembly revealed on Wednesday, 28 January.
The growth was achieved despite mounting fiscal stress triggered by shrinking Central transfers and structural imbalances in India’s federal finances.
India’s real GDP growth declined sharply from 9.2 percent in 2023–24 to 6.5 percent in 2024–25.
Kerala’s real Gross State Domestic Product (GSDP) also moderated, though marginally, from 6.73 percent in 2023–24 to 6.19 percent in 2024–25.
Despite the slowdown, Kerala remained among the top-performing states, particularly in terms of per capita income, the Economic Review tabled by Finance Minister KN Balagopal said.
Economic Review 2025
Kerala’s real per capita GSDP rose by 5.67 percent to ₹1,90,149 in 2024–25, significantly higher than the national real per capita GDP of ₹1,33,501.
The Review underlined that the average income level in Kerala continued to exceed the all-India average by a wide margin, reinforcing the state’s high human development and consumption standards.
In absolute terms, the real GSDP increased to ₹6,85,28,316 lakh in 2024–25 from ₹6,45,31,002 lakh reported in the previous year.
Gross State Value Added (GSVA) at constant prices grew by 6.59 percent, up from 6.34 percent in 2023–24.
At current prices, GSDP and GSVA recorded growth rates of 9.97 percent and 10.08 percent, respectively.
Kerala, the Review claimed, remained the only state to have consistently retained the Plan process, which, has enabled the government to maintain a development trajectory rooted in a pro-people economic strategy.
Despite severe financial constraints imposed by the Union government, the state has set new directions in economic development while safeguarding welfare commitments and public investment.
However, the Review made it clear that Kerala’s capacity to finance productive investment was being increasingly constrained by what it termed a “highly imbalanced federal fiscal structure”.
Between 2021–22 and 2024–25, the state’s own revenue rose by ₹1,02,030 crore, a growth of 42.93 percent—higher than the growth recorded in the previous four-year period.
Own tax revenue grew by 44.18 percent, while non-tax revenue increased by 37.2 percent.
In 2024–25 alone, own tax revenue increased by ₹2,313 crore, though non-tax revenue rose only marginally.
The most significant setback came from grants-in-aid from the Union government, which fell by ₹5,108 crore—a decline of over 42 percent.
The Review was critical of recent Union policy measures, pointing out that the cessation of GST compensation in June 2022 had resulted in an annual revenue loss of about ₹12,000 crore for Kerala.
It also flagged the steady decline in Kerala’s share of central tax devolution—from 3.875 percent under the 10th Finance Commission to 1.925 percent under the 15th Finance Commission.
The growing reliance of the Union government on cesses and surcharges, not shareable with states, has further reduced the divisible tax pool, tightening the fiscal space for states like Kerala, the Review highlighted.
The Review argued that restrictions on borrowing capacity were unwarranted, given Kerala’s sustainable debt-to-GSDP ratio.
Since 2017, the Union government had reduced states’ borrowing space by including borrowings of public sector entities and Public Account surpluses within overall borrowing limits.
Tapering central transfers and curbs on open market borrowing, the Review said, were key reasons behind the liquidity stress faced by the state.
It also said that changes in Centrally Sponsored Schemes have placed additional financial burdens on states.
Projects with a 90 percent central share have steadily declined, while most schemes requiring a 40 percent state contribution.
The Review said Kerala was required to bear 25 percent of land acquisition costs for centrally executed projects such as national highways—an especially heavy burden given the state’s high population density and urbanisation.
Central transfers accounted for 31.31 per cent of Kerala’s total revenue receipts in 2015–16, rising to a peak of 43.67 percent in 2020–21.
Since then, the share has declined every year, falling to 25.41 percent in 2024–25.
The stoppage of GST compensation and revenue deficit grants, the Review warned1, will further weaken the state’s fiscal position in the coming years.
Kerala has continued fiscal consolidation through revenue augmentation and expenditure rationalisation.
The fiscal deficit stood at 3.02 per cent of GSDP in 2023–24, rose to 3.86 per cent in 2024–25, and has been estimated to moderate to 3.16 percent in 2025–26.
Revenue deficit increased to 2.49 per cent of GSDP in 2024–25 from 1.6 percent the previous year and is projected at 1.9 percent in 2025–26.
Total revenue receipts edged up marginally from ₹1,24,486 crore in 2023–24 to ₹1,24,861 crore in 2024–25, reflecting a growth of just 0.3 percent.
This subdued increase masked a sharper concern: transfers from the Centre declined steeply by 6.15 percent during the year.
State’s own revenue receipts, however, continued to show resilience, growing by 2.7 per cent in 2024–25.
Own tax revenue increased by 3.1 percent, while non-tax revenue rose by 0.9 percent.
After a near-stagnation in the previous year, total expenditure registered a robust growth of 9 percent in 2024–25.
Revenue expenditure grew by 9.3 percent, while capital expenditure increased by 8.96 percent, a sharp turnaround from the 0.48 percent growth recorded in 2023–24.
The Review highlighted the importance of sustaining capital investment to support long-term growth.
It also highlighted that the primary sector recorded stronger growth of 2.36 percent in 2024–25, compared to 0.24 percent a year ago.
Agriculture and allied activities grew by 2.14 percent, while fishing and aquaculture registered a notable recovery, posting a growth of 10.55 percent after contracting by 3.58 percent in 2023–24.
The primary sector accounted for 8.06 percent of real GSVA, with agriculture and allied activities contributing 7.64 percent.
Out of Kerala’s total geographical area of 38.86 lakh hectares, the total cropped area stood at 25.15 lakh hectares (64.71 percent) in 2024–25, while forests accounted for 27.8 percent.
Coconut-dominated cropping patterns with a 30.44 percent share, followed by rubber (21.78 percent) and plantation crops (28.22 percent). Rice occupied just 7.01 percent of the cropped area.
Rice productivity improved marginally to 3,006 kg per hectare, an increase of 43 kg over the previous year.
Vegetable production, including bananas and plantains, rose from 17.21 lakh tonnes to 19.11 lakh tonnes.
Irrigation coverage also improved. Net irrigated area increased to 4.38 lakh hectares in 2024–25, with the proportion of irrigated land to net area sown rising from 21.28 percent to 22.28 percent.
Despite the constraints, the Economic Review noted that Kerala continued to make steady progress towards sustainable economic development.
It underscores that maintaining a strong resource base while ensuring judicious allocation of funds remained critical to protecting the state’s welfare model and funding essential infrastructure.
(Edited by Majnu Babu).
