Kerala Finance Minister KN Balagopal chose not to pander to populist sentiments ahead of elections to local bodies later this year followed by those to State Assembly while presenting on Friday the 2025-26 State budget. Last of second Pinarayi Vijayan-led government, the budget proposed a cumulative deficit of ₹1269.46 crore (against an opening balance of ₹234.35 crore).
Balagopal proposed additional expenditures of ₹1820.50 crore and mobilisation of merely ₹366 crore in fresh levies in the budget exercise even as concessions amounted to a minuscule ₹9 crore. The widely expected upward revision of welfare pension as also constitution of a wage revision committee for State government employees did not fructify.
Welfare pension unchanged
The Finance Minister announce a series of revisions in court fees, which is expected to raise ₹150 crore in additional revenue. The next biggest mobilisation effort (₹100 crore) transpired in revision of land revenue under which basic tax rates in all the existing slabs will be increased by 50 per cent. Tax on on EVs, now levied at five per cent, is being rationalised based on cost.
EVs costing above ₹15 lakh will attract a levy of eight per cent of the vehicle cost. For ₹20 lakhs and above, it will be 10 per cent. Electric cars with battery renting facility will be taxed at 10 per cent irrespective of the cost. These measures are expected being in additional revenue of ₹30 crore, the Finance Minister told the State Assembly.
KIIFB revenue model
The state plan outlay for 2024-25 of ₹30,370 crore is being enhanced to ₹32,500 crore ‘in backdrop of severe fiscal crunch forced by Centre.’ In a major revision of policy stance, budget proposed to transform the Kerala Infrastructure Investment Fund Board (KIIFB) that finances social infrastructure, into a revenue generating model. Unverified media reports suggested a meeting of the State cabinet had arrived at an enabling decision as part of which KIIFB-funded road infrastructure will be brought under toll.
Begins on “happy note’
Even though a portion of the working capital is provided by government as budget allocation, a major part is still raised as interest bearing loan, the Finance Minister explained, “In this context, Government will explore possibilities….to transform KIIFB into a revenue generating entity,” he pointed out. Earlier, he began the budget speed ‘on a happy note’ claiming state has ‘definitely overcome trying times’ brought about by severe fiscal constraints. “I am hereby declaring fiscal position has improved now,” he declared. “Investment human capital as fuelling the developmental take-off,” Balagopal aid.
Own tax revenues up
State’s own tax revenue (SOTR) and non-tax revenue are looking up and is driving the positive change in fiscal status. Growth in SOTR has increased to 15.8 per cent from 2021-22 to 2024-25. Same is the case if SOTR and non-tax revenue are taken together. Tax and non-tax revenue has increased 17.4 per cent. Revenue deficit of 2.25 per cent (2021-22) has declined to 1.58 per cent during 2023-24; fiscal deficit from 4.04 per cent to 2.9 per cent; and debt to GSDP ratio 35.92 per cent to 34.2 per cent.
Pension revision arrears
Reduction in fiscal/revenue deficit and debt has not come at the cost of developmental and welfare expenditure. GSDP indicators are on the mend, and may improve even more, going forward. Balagopal blamed a spurt in revenue expenditure on last instalment of pension revision arrears amounting to ₹600 crore. Two instalments of pay revision arrears are being sanctioned and merged with PF. Lock-in period of two instalments of DA arrears being waived off in a ‘vote bank—friendly’ budget.
Share of taxes down
He made a mention of decline in state’s share of taxes out of total taxes collected by Centre since a quarter of a century ago. Its share of 3.88 per cent during tenure of the 10th Finance Commission dipped to 1.92 per cent during 15th Finance Commission. Share of grants allocated to local governments declined to 2.68 per cent from 4.54 per cent during 12th Finance Commission.
Fiscal constraints
GST compensation does not exist anymore, the Finance Minister said. Fiscal deficit has been capped at a mere three percent of the GSDP. Loans currently availed by KIIFB and others along with deposits in public account are now deducted from borrowing limit. Issues faced by state have been raised before 16th Finance commission. The budget a ₹750-crore rehabilitation project for landslide-hit Wayanad region, which the Finance Minister said did not elicit a response in the Union Budget.