Kerala Budget 2025-26 – Comprehensive Study Notes

Budget Overview 2025-26

Macroeconomic Context & Kerala’s Economy

  • Real (constant-price) growth 2023-24: 6.5%6.5\% vs India’s 8.2%8.2\%.

  • Sectoral shares 2023-24 (current prices):
    • Agriculture 10%10\%
    • Manufacturing 24%24\%
    • Services 66%66\%

  • Per-capita GSDP 2023-24: 3,17,7233,17,723 (↑11 %) vs national per-capita GDP 2,11,7252,11,725 (↑9 %).

  • Volatility illustrated in Figure 1 (2018-19 → 2023-24) with sharp pandemic contraction (e.g., services −8.5 % in 2020-21) followed by rebound (services +15.9 % in 2021-22).

Key Fiscal Indicators 2025-26

  • Table 1 summarises multi-year path.

  • Primary deficit 2025-26: 13,215 crore13,215\ \text{crore} → 0.9%0.9\% of GSDP (down from 1.2%1.2\% RE 2024-25).

  • Outstanding debt ratio projected to decline slightly from 34.2%34.2\% (RE 2024-25) to 33.8%33.8\% (BE 2025-26).

Formulae (for conceptual clarity):

  • Revenue Deficit=Revenue Expenditure−Revenue Receipts\text{Revenue Deficit}=\text{Revenue Expenditure}-\text{Revenue Receipts}

  • Fiscal Deficit=Total Expenditure−Total Receipts (excl. borrowings)\text{Fiscal Deficit}=\text{Total Expenditure}-\text{Total Receipts (excl. borrowings)}

  • Primary Deficit=Fiscal Deficit−Interest Payments\text{Primary Deficit}=\text{Fiscal Deficit}-\text{Interest Payments}

Policy Measures & Tax Proposals

  • Land revenue: basic land tax ↑50 % (first hike since 2010; improves rural revenue base).

  • Vehicle tax: 50 % hike on 2/3-wheelers & private cars >15 years; lifetime tax for electric cars linked to cost (incentivises EV adoption, discourages aged ICE vehicles—environment & road-safety motives).

  • Cooperative Housing Mission: target 1 lakh affordable houses (rural & urban) within 2 years via cooperative model (leverages Kerala’s strong co-op banking network).

  • Coastal protection: Rs 100 crore phase-I allocation for geo-tube offshore breakwaters (addresses climate-change-driven erosion; first such package in state).

  • Green Hydrogen Valley pilot: outlay Rs 5 crore to demonstrate renewable-powered electrolysis (aligns with national hydrogen roadmap & decarbonisation goals).

Expenditure Details

Aggregate

  • Revenue expenditure: 1,79,476 crore1,79,476\ \text{crore} (↑11 %).

  • Capital outlay: 16,938 crore16,938\ \text{crore} (↑20 %; asset-creating).

  • Loans & advances: 2,168 crore2,168\ \text{crore} (↓16 %).

  • Context: 2015-16 → 2022-23 Kerala historically underspent BE by 8 % while over-projecting revenue by 11 % → 2024 Govt order to cut Plan expenditure by 50 % if schemes deemed inessential.

Committed Expenditure (limits fiscal flexibility)

  • Salaries: 44,114 crore44,114\ \text{crore} (29 % of revenue receipts; ↑8 %).

  • Pensions: 29,460 crore29,460\ \text{crore} (19 %; ↑7 %).

  • Interest: 31,824 crore31,824\ \text{crore} (21 %; ↑7 %).

  • Combined committed share 2025-26: 69 % of revenue receipts (down from 73 % ACT 2023-24 but still high).

Sector-wise Highlights (Table 4) – % change over RE 2024-25 in brackets

  • Education, Sports, Arts, Culture: 26,398 crore26,398\ \text{crore} (+12 %); includes 3,149 crore3,149\ \text{crore} for primary schools (mainly wages) & 644 crore644\ \text{crore} PM-Poshan.

  • Social Welfare & Nutrition: 16,054 crore16,054\ \text{crore} (+5 %); 13,340 crore13,340\ \text{crore} to Social Security Pension Ltd (lifeline for elderly & disabled).

  • Health & Family Welfare: 10,874 crore10,874\ \text{crore} (+13 %); urban allopathic 2,688 crore2,688\ \text{crore}, rural 1,379 crore1,379\ \text{crore}.

  • Agriculture & Allied: 8,259 crore8,259\ \text{crore} (+16 %); crop husbandry 1,539 crore1,539\ \text{crore}, rubber incentive 600 crore600\ \text{crore} (supports price-hit growers).

  • Rural Development: 8,021 crore8,021\ \text{crore} (+112 %); MGNREGS 4,120 crore4,120\ \text{crore}, HUDCO Life Mission interest subsidy 256 crore256\ \text{crore}.

  • Transport: 5,411 crore5,411\ \text{crore} (+37 %); roads & bridges capex 2,870 crore2,870\ \text{crore}, Kochi Metro 289 crore289\ \text{crore}.

  • Police: 5,098 crore5,098\ \text{crore} (+9 %); modernisation 112 crore112\ \text{crore}.

  • Welfare of SC/ST/OBC/Minorities: 3,488 crore3,488\ \text{crore} (+49 %).

  • Urban Development: 2,049 crore2,049\ \text{crore} (+30 %); AMRUT 1,083 crore1,083\ \text{crore}, Life Parppida Mission 218 crore218\ \text{crore}.

  • Water Supply & Sanitation: 1,299 crore1,299\ \text{crore} (−20 %); Jal Jeevan 560 crore560\ \text{crore}.

  • These 10 sectors = 44 % of total sectoral spend (up from 42 % RE 2024-25).

Receipts Details

Composition 2025-26 (Table 5)

  • Total revenue receipts: 1,52,352 crore1,52,352\ \text{crore} (+15 %).
    • State’s own resources: 1,10,660 crore1,10,660\ \text{crore} (73 %).
    • Transfers from Centre: 41,691 crore41,691\ \text{crore} (27 %).

  • Devolution (share in central taxes): 28,617 crore28,617\ \text{crore} (+12 %).

  • Grants-in-aid: 13,075 crore13,075\ \text{crore} (+67 % vs slump in 2024-25).

Own-Tax Structure (Table 6)

  • State GST: 37,763 crore37,763\ \text{crore} (+12 %).

  • Sales Tax/VAT (mainly fuel & liquor): 33,591 crore33,591\ \text{crore} (+10 %).

  • Motor vehicle tax: 7,397 crore7,397\ \text{crore} (+8 %).

  • Stamp duty & registration: 7,343 crore7,343\ \text{crore} (+11 %).

  • State excise (liquor): 3,150 crore3,150\ \text{crore} (+7 %).

  • Taxes & duties on electricity: rebound to 1,100 crore1,100\ \text{crore} (10× jump; underscores previous under-realisation).

  • Land revenue: 843 crore843\ \text{crore}.

Own-Non-Tax: 19,146 crore19,146\ \text{crore} (fees, PSUs’ dividends, lotteries etc.)

Finance Commission Grants

  • 15th FC period (2021-26) allocations for Kerala in 2025-26: 2,797 crore2,797\ \text{crore} (↑13 %). Breakdown: rural local bodies 1,301 crore1,301\ \text{crore}, urban 1,113 crore1,113\ \text{crore}, disaster risk mitigation 383 crore383\ \text{crore} (tied %: rural 60, urban 73).

Deficit, Debt & FRBM Path

  • Revenue deficit trend: peaked pandemic yr 2020-21 at 2.6%2.6\% GSDP; projected glide to 1.7%1.7\% by 2027-28.

  • Fiscal deficit trajectory: FY23 2.5%2.5\% → FY24 3.0%3.0\% (actual), FY25 RE 3.5%3.5\%, FY26 3.2%3.2\%, projected steady at 3.0%3.0\% afterwards.

  • Outstanding debt ratio forecast to fall from 35.9%35.9\% (2021-22) to 32.6%32.6\% (2027-28) yet remains above national median (~30 %).

Guarantees & Contingent Liabilities

  • Outstanding guarantees (31 Mar 2024): 62,868 crore62,868\ \text{crore} (5.5 % GSDP).

  • Rose to 65,713 crore65,713\ \text{crore} by 30 Sep 2024; major beneficiaries:
    • KIIFB 20,213 crore20,213\ \text{crore} (infrastructure bonds)
    • KSFE 19,724 crore19,724\ \text{crore} (chitty/loan schemes)

  • Sectoral spread includes co-op banks, road & transport entities, local bodies, etc.; contingent risk management crucial.

Comparative Lens (Annexure 1)

  • Kerala’s 2025-26 sectoral shares vs 31-state avg (2024-25 BE):
    • Education 13.4 % (vs 15 % avg) → historically strong literacy but current spend below peers.
    • Health 5.5 % (vs 6.2 % avg) → high morbidity of ageing population may demand more.
    • Urban Dev 1 % (vs 3.3 %) → under-allocation despite rapid urbanisation.
    • Roads & bridges 2.3 % (vs 4.3 %) → network vulnerable to floods; capex push relatively mild.
    • Housing 0.1 % (vs 1.3 %) → cooperative housing mission aims to bridge gap.
    • Water & sanitation 0.7 % (vs 2.5 %) → reliance on centrally-funded Jal Jeevan/AMRUT.

Performance Against 2023-24 Budget (Annexure 2)

  • Net receipts fell 8 % below BE; major slippages: grants −24 %, electricity duty −85 %, SGST −15 %.

  • Expenditure compressed by 9 %; revenue expenditure down 11 % (affects service delivery), capital outlay down 7 %.

  • Some heads dramatically underspent: Rural Development −62 %, Urban Dev −35 %, Social Welfare −31 %.

  • Energy allocation surged 695 % due to one-off subsidy/financial restructuring.

  • Borrowings overshot BE by 34 % to fill resource gap.

Implications & Significance

  • Continued primary deficit means debt keeps rising, albeit at a slower GDP-adjusted pace; interest (21 % of revenues) crowds out development.

  • Tax hikes on land & old vehicles combine revenue augmentation with environmental & equity goals but may face compliance pushback.

  • Green hydrogen and coastal geo-tubes signal forward-looking climate strategy; small allocations are pilots—scalability contingent on results & external funding.

  • High reliance on social security pensions reflects demographic reality (ageing, migrant remittances plateau). Sustainability hinges on new revenue sources.

  • Underspending of rural development & plan schemes suggests implementation bottlenecks—50 % cut order could rationalise, but also risk developmental lag.

  • Guarantees for KIIFB/KSFE underpin infrastructure & household credit but elevate contingent risk; prudent disclosure complies with FRBM.

  • Compared with other states, Kerala’s lower capital focus may inhibit long-term growth; balancing welfare & capex is critical.

Potential Challenges & Considerations (Exam-oriented)

  • Can Kerala meet fiscal deficit target if growth cools below 12 % nominal? Sensitivity: every 1 %pt fall in GSDP adds ≈0.03%0.03\% to deficit ratio.

  • Effectiveness of 50 % plan-cut order: discuss trade-off between fiscal prudence & SDG/social targets.

  • Evaluate revenue enhancement through land revaluation amid fragmented holdings & legal appeals.

  • Risk of guarantee invocation: model stress scenarios (e.g., KIIFB bond rollover at higher rates).

  • Demographic dividend vs ageing: how budget allocations reflect migration trends and labour shortages.

  • Alignment with 15th FC grant conditionalities—especially disaster risk management for flood-prone coastal belt.

Quick Reference Numbers

• GSDP 14.27 lakh cr14.27\ \text{lakh cr} | Per-capita GSDP 3.18 lakh3.18\ \text{lakh} (2023-24)
• Revenue Deficit 27,125cr27,125 cr (1.9 %) | Fiscal Deficit 45,039cr45,039 cr (3.2 %)
• Debt pay-down 1.15 lakh cr1.15\ \text{lakh cr} | Outstanding Debt 33.8 % GSDP
• Committed spend 1.05 lakh cr1.05\ \text{lakh cr} (69 % of rev. receipts)
• Own-tax 91,515cr91,515 cr | SGST 37,763cr37,763 cr | VAT/Sales 33,591cr33,591 cr
• Grants 13,075cr13,075 cr (+67 %) | FC grants 2,797cr2,797 cr
• Capital outlay growth +20 % but share still modest (~8.5 % of net expenditure)