Sat Jan 10 15:49:21 UTC 2026: ### Kerala Seeks Sweeping Financial Package from Union Budget Amidst Economic Pressures

The Story:
Kerala is seeking a substantial financial package from the Union Budget 2026-27, including a ₹21,000 crore ‘Special Fiscal Correction Package’ to address severe resource gaps. State Finance Minister K.N. Balagopal presented a comprehensive wish-list to Union Finance Minister Nirmala Sitharaman on January 10, 2026, encompassing various demands ranging from infrastructure development and industrial support to social safety nets and environmental mitigation. The state argues these proposals are essential contributions to national progress and offer scalable models for other regions.

The proposals also include rollback of the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) scheme and restoration of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) framework. Kerala is also requesting the Central Government to consider an All India Institute of Medical Sciences (AIIMS) and the Sabari Rail project and address “State-specific rescue packages” for traditional small-scale industries, and a ₹1,000-crore allocation for mitigating human-wildlife conflict.

Key Points:

  • Kerala requests a ₹21,000 crore ‘Special Fiscal Correction Package’ due to borrowing constraints and GSDP estimation discrepancies.
  • The state proposes a defence R&D corridor linking Vizhinjam, Chavara, and Kochi, leveraging existing naval and aerospace assets.
  • A ₹1,000 crore Central assistance is sought for a strategic rare earth corridor project tapping into coastal mineral sand reserves.
  • Kerala demands the reversal of the VB-G RAM G scheme and the reinstatement of the MGNREGA framework.
  • Kerala is requesting the Central Government to consider an All India Institute of Medical Sciences (AIIMS) and the Sabari Rail project.
  • The state seeks increased borrowing space of 0.5% of GSDP for capital expenditure.
  • Kerala urges the Centre to implement a ‘GST 2.0 revenue protection framework’ to prevent revenue shocks from GST rate rationalization following the 2025 overhaul.
  • The state requests special packages for the plantation sector, return migrants, and the creation of a ₹1,000 crore Rubber Price Stabilisation Fund.
  • Kerala requests ₹2,000 crore to clear the outstanding liabilities of the Kerala State Civil Supplies Corporation (Supplyco) and establish paddy procurement and milling infrastructure.

Critical Analysis:
The request for a ‘Special Fiscal Correction Package’ highlights a significant point of contention between the state and the union government regarding financial resource allocation. This tension is exacerbated by the perceived adverse impact of the 2025 Goods and Services Tax (GST) overhaul on state revenues. The repeated demands for AIIMS, Sabari Rail project, and financial assistance, reflect long-standing grievances of the State with the Union government.

Key Takeaways:

  • Kerala faces significant financial pressures attributed to borrowing limitations, GST impacts, and GSDP estimation issues.
  • The state is positioning itself as a strategic site for national progress, particularly in defence R&D and rare earth mineral exploitation.
  • The demands reflect a push for increased financial autonomy and a re-evaluation of the Centre-State financial relationship, particularly regarding GST revenue sharing and Centrally Sponsored Schemes.
  • Kerala is trying to leverage the Vizhinjam seaport to further develop the state.
  • Kerala is trying to address human-wildlife conflict with an allocation for such mitigation.

Impact Analysis:

The outcome of these budgetary requests will significantly impact Kerala’s economic trajectory. Securing the requested financial package and project approvals would provide a substantial boost to infrastructure development, industrial growth, and social welfare programs. Failure to obtain these concessions could exacerbate the state’s fiscal challenges and hinder its development plans. The success of the defence R&D corridor and rare earth mineral project could have long-term implications for India’s strategic capabilities and economic self-reliance. The GST 2.0 framework if implemented may change future dynamics between States and the Center.

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