Finance Department sources said the Budget was drafted with a clear understanding that Kerala’s treasury needs immediate revenue infusion rather than proposals designed merely for political optics.
Published Feb 07, 2025 | 4:23 PM ⚊ Updated Feb 07, 2025 | 4:35 PM
Finance Minister KN Balagopal.
Synopsis: Despite upcoming elections to the local self-government bodies and the state Assembly, the LDF government in Kerala did not announce any populist measures but focused on revenue mobilisation. However, politically beneficial announcements are likely closer to the polls.
Defying widespread expectations of election-friendly measures, Kerala Finance Minister KN Balagopal’s fifth budget—and likely the last full one before the 2026 Assembly elections—steered clear of populist giveaways, including not even a marginal hike in social security pensions.
Instead, the Budget leaned heavily towards resource mobilisation, signalling the state’s desperate need for fiscal correction.
For a government often accused of fiscal imprudence, the Budget stood as a candid acknowledgment of the state’s financial crunch.
According to Finance Department sources, the Budget was drafted with a clear understanding that Kerala’s treasury needs immediate revenue infusion rather than proposals designed merely for political optics.
The most notable—and controversial—aspect of the budget was its aggressive revenue-raising measures.
Under the head of the resource mobilisation, Balagopal introduced several hikes, including court fee revisions, vehicle tax increases, and a 50 percent hike in land revenue.
These measures are expected to collectively generate an additional ₹366 crore.
• Hike in court fees: Fees under 16 heads were revised, with an estimated additional revenue of ₹150 crore.
• Land revenue hike: The biggest revenue boost will come from the 50 percent increase in land tax across all slabs, expected to generate ₹100 crore. The government justified this by citing the exponential increase in land value and its income-generating potential.
• Increased tax on older vehicles: Vehicles older than 15 years will now face a higher tax burden, potentially bringing in ₹55 crore.
• New tax on electric vehicles with battery renting: The government proposed a 10 percent tax on electric vehicles with battery renting, expected to yield ₹30 crore.
• Hike in fees for Gahan and Gahan releases: Cooperative institutions filing Gahan-related documents in sub-registrar offices will now pay higher fees, contributing ₹15 crore.
“Gahan” is a Kerala government scheme to provide relief to those who have availed loans from the cooperative sector.
Despite these additional revenue measures, Kerala’s Budget estimates for 2025-26 reveal a stark reality:
• Revenue receipts: ₹1,52,351.67 crore
• Revenue expenditure: ₹1,79,476.20 crore
• Fiscal deficit: The persistent gap between revenue and expenditure continues to haunt the state, with the Budget also eyeing an additional resource mobilisation of ₹366 crore.
With the local body and Assembly elections around the corner, many expected the Kerala government to announce revisions in social security pensions and pay scales.
However, fiscal austerity seems to have taken precedence over political expediency.
Presenting the budget, Balagopal highlighted the government’s commitment to social security pensions, stating that ₹33,210.68 crore had been disbursed over the past 42 months.
By the end of the second Pinarayi Vijayan government’s term, this figure is expected to reach ₹50,000 crore.
Kerala continues to provide the largest social security pension in the country, with around ₹11,000 crore spent annually to provide ₹1,600 per month to 60 lakh beneficiaries.
Acknowledging the pending arrears, Balagopal assured that two installments had already been disbursed in the current financial year and that the remaining three would be cleared in 2025-26.
He emphasised that the LDF government is committed to shielding the people despite the Centre’s financial squeeze on Kerala. Importantly, he promised that from the next financial year, monthly pensions would be paid without arrears.
On the contentious issue of pay revision, Balagopal admitted that treasury management constraints had forced the government to put certain expenditures on hold, particularly the disbursement of DA arrears for state government employees and pensioners.
However, he was quick to highlight that Kerala had gone ahead with pay revision even during the COVID-19 crisis, despite the heavy financial burden.
To address some concerns, the budget included a few key announcements:
While the Budget stops short of announcing a revision in social security pensions or a fresh pay hike, some see this as a strategic delay rather than a fiscal constraint.
Mary George, a former member of the Public Expenditure Review Committee, told South First that such announcements could be deliberately withheld with elections in mind.
“I expect these announcements to come closer to the elections. The government is prioritising revenue mobilisation for now, but politically beneficial measures might be rolled out at the right moment,” she observed.
The finance minister’s move to sidestep election-oriented populism in favor of fiscal consolidation presents a calculated risk.
While the Opposition is likely to exploit the tax hikes as a burden on common citizens, the government will underscore its priority to stabilize Kerala’s economy rather than indulge in short-term political appeasement.
The finance minister had already mentioned the reasons for the resource mobilization in the budget.
In his Budget speech, he strongly criticised the Union government for curtailing the state’s borrowing rights and reducing its share of central funds, warning that such policies threaten India’s fiscal federalism.
He pointed out that while the state’s fiscal deficit is capped at 3 percent of the Gross State Domestic Product (GSDP), Kerala is not allowed to borrow even within this limit, whereas the Union government exceeds its borrowing cap.
He highlighted a sharp decline in Kerala’s share of central tax allocation, which dropped from 3.88 percent under the 10th Finance Commission to a historic low of 1.92 percent under the 15th Finance Commission.
Additionally, the state’s grants for local governments have also been reduced, despite Kerala being a frontrunner in decentralization.
The Economic Review Report, 2024, tabled alongside the Budget, echoed similar concerns, stating that the cessation of GST compensation in June 2022 has led to an annual revenue loss of ₹12,000 crore.
The report also criticised the Union government’s imposition of borrowing limits, arguing that Kerala maintains a sustainable debt-to-GDP ratio.
Given that this is Balagopal’s last full budget before the next Assembly elections, its impact on public sentiment remains to be seen.
With local body elections around the corner, the budget could become a hot-button issue, particularly with opposition parties framing it as an anti-people move.
The real challenge, however, lies in implementation.
While the revenue measures are designed to plug deficits, their success depends on efficient collection mechanisms.
Moreover, the absence of major welfare announcements raises concerns about how the government plans to address Kerala’s growing social security demands.
In essence, the Kerala Budget 2025 is a clear shift from populism to pragmatism—a budget that prioritises financial discipline over electoral gains.
Whether this gamble will pay off for the government politically remains an open question.\
Chief Minister Pinarayi Vijayan lauded the Budget as a “creative intervention” that ensures both welfare and development amid severe financial constraints imposed by the central government.
He emphasised that despite fiscal discrimination, Kerala is mobilising resources without burdening its people.
According to him, the Budget prioritises education, healthcare, infrastructure, and economic growth while safeguarding social welfare schemes.
He framed the budget as a “blueprint for a new Kerala” that would overcome economic challenges and move towards comprehensive progress.
However, the Congress led Opposition has dismissed these claims.
Leader of the Opposition VD Satheesan accused the LDF government of misleading the public with exaggerated financial claims.
He pointed out that the Budget failed to allocate sufficient funds for debt repayment, welfare schemes, and crucial sectors like education and healthcare.
He criticised the massive spending cuts in projects, including the drastic reduction in Life Mission funds and scholarships for Scheduled Caste and Scheduled Tribe students.
Satheesan also alleged that Kerala Infrastructure Investment Fund Board (KIIFB), once championed by the government as a new economic model, has turned into a major liability.
Satheesan further questioned the credibility of the state’s economic growth claims, arguing that the government was manipulating statistics by comparing post-COVID economic recovery to earlier periods.
He slammed the government’s failure in tax collection, highlighting the GST revenue shortfall despite increasing economic activity.
Additionally, he pointed out that a 50 percent hike in land tax disproportionately impacts the poor, making the government’s claim of protecting the common man questionable.
KPCC President K Sudhakaran, MP, accused Chief Minister Pinarayi Vijayan of failing to provide financial relief to the people while prioritising government expenditures.
He criticised the government for not increasing welfare pensions by even ₹100 over the past five years, despite promises to raise it to ₹2,500.
Sudhakaran also attacked the decision to raise taxes on electric vehicles, calling it a setback to Kerala’s climate initiatives. He alleged that government employees were deceived regarding salary revisions and accused the government of withholding several benefits.
Expressing concerns over the state’s financial management, he warned that the plan to make KIIFB revenue-generating would lead to the implementation of tolls, which he vowed to oppose.
He dismissed the Budget as underwhelming, stating that it arrived with great expectations but delivered little.
Calling it Pinarayi Vijayan’s “last Budget,” Sudhakaran urged voters to ensure the Left Front does not get another chance to present one.
Echoing similar concerns, BJP state president K Surendran criticised the Budget as a hollow document, accusing the government of failing to address critical issues such as unemployment, industrial decline, and agricultural distress.
He argued that the Budget looks like “a speech on the street” rather than a well-researched financial plan.
Surendran said the government’s mismanagement, rather than central neglect, is responsible for Kerala’s economic crisis.
He also pointed out the contradiction of the finance minister criticising the Centre while simultaneously highlighting central schemes in the Budget.
(Edited by Majnu Babu).
