Kerala Budget 2026 | 28.5% of State Plan allocated for strengthening local self-government institutions

The Kerala Budget 26-27 has proposed to earmark 28.50% of the State Plan, amounting to around ₹10,189 crore, as the development fund for local governments, an increase of ₹1,089 crore from the previous year.

The General-Purpose Fund and the Maintenance Fund proposed for disbursement to local self-government onstitutions in 2026–27 have been enhanced to ₹3,236.76 crore and ₹4,315.69 crore respectively, reflecting a rise of ₹786.96 crore compared to the previous year. In addition, ₹160 crore has been allocated as a grant to Urban Local Bodies (ULBs) under the Kerala Solid Waste Management Programme (KSWMP), an increase of ₹45 crore from last year.

Presenting the Budget on Thursday, Finance Minister K.N. Balagopal rued that grants to local bodies based on the recommendations of the Central Finance Commission have declined sharply – from 4.54% during the 12th Finance Commission to 2.68% under the 15th Finance Commission. He announced in-principle approval for the constitution of a Local Government Board of Finance to empower local governments to augment tax and non-tax revenue and avail loans. Local governments that generate higher own revenue will receive a larger share of State funds as an incentive, Mr. Balagopal said.

Approval has also been granted in principle to the Finance Commission’s recommendation to increase the honorarium of representatives in local governments. Steps will be taken to disburse the revised honorarium to members, councillors, chairpersons of standing committees, and major office bearers with effect from April 2026.

The Minister noted that local self-government institutions (LSGIs) in Kerala are lagging behind in utilising Corporate Social Responsibility (CSR) funds. The proposed Board of Finance will take initiatives to strengthen LSGIs for effective use of CSR resources, he said.

Urbanisation and the proportion of senior citizens will be factored into financial devolution to local bodies. Urbanisation in rural areas beyond municipalities and corporations will also be considered for resource allocation.

A welfare fund will be constituted for former representatives of local governments, with ₹250 crore to be raised in 2026–27. Local governments will be granted special sanction to contribute to this fund. The governing body of the Welfare Fund will decide on its management and the benefits to be provided.

Municipalities and Corporations will be permitted to issue municipal bonds for implementing major projects, with necessary technical support provided. Gram panchayats will also be allowed to avail loans for similar purposes, subject to fixed criteria. Each District Planning Committee will receive an annual allocation of ₹10 crore to help local bodies improve the quality and technical expertise of developmental projects by collaborating with higher education and research institutions.

A special development fund will be allocated at the district panchayat level for the relatively backward sections of Scheduled Castes and Scheduled Tribes, in proportion to their population.