In a high-stakes meeting aimed at averting a financial crisis, Kerala's Finance Minister K N Balagopal held crucial discussions with Union Finance Minister Nirmala Sitharaman in New Delhi on Wednesday. The central agenda was an urgent plea for the Centre to approve the state's long-standing demand to increase its borrowing limit, a move Kerala deems critical for its survival.
Allegations of Undue Discrimination and Fiscal Squeeze
Balagopal presented a memorandum outlining what the state government terms as "undue discrimination" against Kerala, despite its strong economic performance. He argued that while Kerala ranks among the top five states in GST collection efficiency and has achieved significant growth, it is being pushed into a serious financial crisis by the Centre's policies.
The minister reiterated the demands previously raised by Chief Minister Pinarayi Vijayan during their last meeting in the national capital. He stated that Kerala is facing "serious fiscal challenges from multiple, simultaneous shocks" to its revenue streams and borrowing capacity. The combination of GST reforms and adverse international trade developments has created an unprecedented fiscal pressure, threatening the state's ability to fund essential services and meet its existing liabilities.
The Twin Blows: GST Rationalization and US Tariffs
The memorandum detailed two major sources of revenue shortfall. First, the recent rationalization of Goods and Services Tax (GST) rates has led to a substantial drop in income for the state. Being heavily reliant on GST, Kerala is staring at an annual shortfall of approximately Rs 8,000 crore for the financial year 2025-26. This massive hole in the budget severely reduces the government's ability to finance public services, welfare programs, and development projects.
The second blow comes from international trade. The reciprocal tariffs imposed by the United States are negatively impacting Kerala's key export sectors. Industries like marine products, spices, cashew, and textiles are suffering, which is expected to lead to an additional revenue loss of around Rs 2,500 crore. This dual impact weakens the state's overall tax base and clouds its economic growth prospects.
A State Seeking Fair Play
Balagopal emphasized to reporters that the state's impressive GST performance should be rewarded, not penalized. He alleged the existence of a deliberate "anti-Kerala stance" at the central level. The meeting underscores the growing tension between the state and the Centre over fiscal federalism and resource allocation.
The immediate approval of a higher borrowing limit is now portrayed as a lifeline for Kerala to navigate through what it calls an "unprecedented fiscal squeeze." The outcome of this meeting is being closely watched, as it will have significant implications for Kerala's financial stability and its capacity to serve its citizens.
