Kerala Budget 2026-27: Medium Term Fiscal Policy statement echoes Kerala’s expectations of better deal from 16th Finance Commission

With the 16th Finance Commission awards expected to be made public soon, Kerala is expecting a higher devolution of taxes and grants-in-aid, including revenue deficit (RD) grant, from the Commission’s recommendations.

“The share of Central Taxes is projected to grow at 53.80% in anticipation of higher devolution from the 16th Finance Commission. Grant-in-aid is estimated at a higher side over the Revised Estimate for 2025-26 anticipating higher allocation of RD Grant,” the Medium Term Fiscal Policy (MTFP), tabled in the State Assembly along with the Budget documents on Thursday (January 29, 2026), said.

Finance Minister K.N. Balagopal had also shared this expectation at a post-Budget briefing in Thiruvananthapuram on Thursday.

As per the Budget Estimates for 2026-27, Union government transfers are projected to grow to ₹68,613.86 crore, with the share of Central taxes and grants-in-aid respectively accounting for ₹42,114.32 crore and ₹26,499.54 crore. Kerala is also expecting its Own Tax Revenue to increase to ₹94,002.47 crore and non-tax revenue, to ₹20,355.77 crore.

Own Tax Revenue

The Nominal Gross State Domestic Product (GSDP) is projected to grow at 12% in both 2027-28 and 2028-29, which comprises the forward estimates period, according to the MTFP statement. State Own Tax Revenue is estimated to grow at 12% in the forward estimate period. Non-Tax Revenue is projected to grow at 9%.

The share of Central taxes and grants-in-aid is also estimated to grow at 10% and 5% respectively in the forward estimate period. Capital expenditure is projected to grow at 14% and 16% in 2027-28 and 2028-29, excluding the capital spending by the Kerala Infrastructure Investment Fund Board and local bodies.