Fri Feb 07 18:07:12 UTC 2025: ## Kerala Budget Highlights Worsening Finances, Need for Reform

**THIRUVANANTHAPURAM, February 7, 2025** – Kerala’s 2025-26 budget, presented amidst dwindling state finances, projects a 14% increase in total outlay compared to revised estimates. However, concerns arise from significant discrepancies between the budget estimates and revised estimates for the current fiscal year. The budget size has shrunk from ₹1,84,327 crore to ₹1,78,771 crore, despite a rise in the fiscal deficit. A dramatic drop in capital outlay, from a budgeted ₹5,680 crore to a mere ₹669 crore, casts doubt on the feasibility of announced investment projects.

According to Emmanuel Thomas, Head of the Department of Economics at St. Thomas College (Autonomous), Thrissur, the state’s continued reliance on a state-led development approach is unsustainable. He advocates for significant reforms to attract private investment, citing the success of Nordic welfare states as evidence that private capital and social welfare are not mutually exclusive. However, he cautions against offering excessive concessions to attract investment, emphasizing the importance of transparency, accountability, and good governance.

The budget includes revenue-raising measures such as increased land tax and electric vehicle taxes, which are criticized for potentially harming ordinary citizens and hindering the green transition. Thomas suggests that the government should focus on improving GST collection and recovering outstanding tax dues, ultimately linking revenue growth to economic growth.

A major concern is Kerala’s lack of a mega-city, which hinders the agglomeration economies that attract investment and talent. Thomas urges the state to prioritize the development of at least one major urban center, possibly building on the “special development zone” initiative from the previous budget, focusing on the service sector.

The absence of announcements regarding foreign and private universities in the budget is also noted as a missed opportunity. Thomas argues that Kerala’s young, globally competent population needs a supportive institutional framework, including regulatory reforms and a more competitive environment, to thrive. He concludes that the Finance Minister missed the chance to propose cost-effective reforms that would have resonated with young voters and stimulated economic growth.

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