If there were any lingering doubts or unresolved questions regarding the state government's ability to balance the Budget for 2025-26, Finance Minister KN Balagopal certainly didn't betray them. In a notably dense budget speech spanning 243 pages with a number of new schemes and a modest attempt at resource mobilisation, the FM began by reassuring government employees that their Dearness Allowance (DA) arrears would be settled. The tone of the speech was designed to convey the picture of a government in control, despite concerns about fiscal constraints.

Just before the budget presentation, when mediamen asked whether there would be any increase in the Rs 1,600 monthly social welfare pension provided to the state’s 62 lakh welfare pensioners, the FM clarified that priority would be given to clearing the backlog for the three months’ arrears before the end of the financial year, highlighting the government’s intent to fulfill its existing obligations before addressing other issues.

 The government had no shortage of ideas consistent with previous budgets as it unveiled several novel proposals aimed at fostering economic growth. These included:

• A comprehensive cooperative housing program, with an interest subvention allocation of Rs 20 crore aimed at promoting affordable housing in the State.
• The eventual operationalization of metro rail systems in Thiruvananthapuram and Kozhikode, with preliminary work on the capital city’s metro set to begin in 2025-26. This project is seen as a vital step in modernizing Kerala's urban infrastructure.
• A proposal to position Kerala as a hub for health tourism, with Rs 50 crore earmarked for the initiative. This strategy is designed to capitalize on Kerala’s established reputation for medical excellence and natural beauty.
• An allocation of Rs 1,000 crore through KIIFB to develop the Vizhinjam-Kollam-Punalur growth triangle, incorporating multimodal parks, storage facilities, and logistics centers. This is part of a broader effort to modernize the state’s infrastructure and improve connectivity.
• A fresh initiative to attract Global Capability Centres (a trend already taking shape in neighboring states like Tamil Nadu and Karnataka), with an initial allocation of Rs 5 crore to build the necessary ecosystem.
• The introduction of the K-homes project, aimed at developing basic tourism infrastructure by utilizing empty and unoccupied homes across the state. This idea aims to utilize underused housing while boosting tourism potential in rural areas.
• Municipal bonds issued by local self-governments, expected to mobilize Rs 1,000 crore for local development projects, thereby leveraging municipal-level cash flows.
• An interest subvention scheme for loans up to Rs 50 crore for setting up hotels through the Kerala Financial Corporation, aimed at improving the hospitality infrastructure in Kerala.
• Cash inflows into KIIFB are to be directed toward transforming it into a revenue-generating entity, with the anticipated introduction of a user-fee for capital assets created using its funds, which would help sustain long-term infrastructure projects.

For Wayanad landslide rehabilitation, the FM announced an immediate allocation of Rs 750 crore, out of a total expected expenditure of Rs 2,111 crore, underlining the government’s commitment to disaster rehabilitation. Additionally, the government is confident that the NH 66 project will be completed and open for traffic by the end of this year, offering a much-needed boost to the state’s connectivity.

Expressing optimism that the worst of the fiscal constraints was behind the Kerala economy, the FM stated, “I am pleased to announce that we have clearly overcome the severe fiscal challenges that affected the state in recent years. Even during these difficult times, we have been able to continue developmental and welfare activities with minimal hindrance... Along with substantial reductions in fiscal difficulties, the state is poised to be in a much stronger fiscal position in the coming years.”

As usual, KIIFB was emphasized as a crucial tool for investment and infrastructure development. The FM claimed that, as of December 2024, KIIFB had approved 1147 projects worth Rs 87,436 crore, with Rs 20,000 crore allocated for land acquisition. To date, KIIFB has funded projects totaling Rs 32,798 crore. This reaffirms the government’s strategy to utilize KIIFB as a central mechanism for large-scale investments in infrastructure.

Overall, the budget reaffirmed the state’s commitment to pursuing infrastructure and welfare spending, with a focus on key sectors like housing, transportation, health, and tourism. However, questions remain about the government's ability to meet its ambitious spending targets, especially given the constraints of past fiscal performance.

Let’s review the total spending of the government for the past three years (for which figures are available), along with estimates for the current and upcoming financial years:

The primary concern is whether the government will be able to meet the Rs 1,78,771 crore expenditure estimated for this year (which has already been revised down from the initial Rs 1,84,327 crore), given past trends not to speak of the projected nearly Rs 2 lakh crore for 2025-26. These targets appear ambitious, especially when considering the state’s track record of meeting earlier spending commitments.

It is also noteworthy that Kerala’s economic growth rate in 2022-23 and 2023-24 (according to the Planning Board’s Economic Survey presented today) lagged behind the national GDP growth. In 2023-24, for instance, while the national GDP grew by 8.2%, Kerala’s State Domestic Product (SDP) expanded by only 6.5%. Similarly, in 2022-23, Kerala’s SDP grew by 4.2%, while India’s GDP increased by 7.2%. This gap suggests that Kerala’s economy has catching up to do even with the national growth rate.

Furthermore, Kerala’s GST collections up to January 2025 showed a year-on-year increase of only 6%, compared to the national average of 12%. This raises concerns that growth may slow further, following the modest growth of the last two years, possibly exacerbated by the long aftermath of the COVID-19 pandemic, which still seems to impact the State’s economic performance.

The FM refrained from introducing populist measures. A couple of initiatives, such as the increase in court fees and land tax, are expected to generate a modest additional income of Rs 150 crore and Rs 100 crore, respectively. While the schemes and new proposals are largely unexceptionable , the real test will be in the execution of these projects and the ability to generate sufficient revenue to meet the projected expenditures.

(S Adikesavan is a commentator on economy and banking. Opinions expressed are personal)