Kerala Budget 2026-27 is one that seeks fiscal stability amid demographic transition

Kerala’s Budget (2026–27) is an exercise in fiscal realism rather than profligacy. Revenue receipts are budgeted to rise to ₹1.83 lakh crore, driven largely by improvements in the State’s own tax and non-tax revenues. Yet, the broader fiscal position remains constrained. While the share of central taxes has broadly kept pace with estimates, grants-in-aid have declined sharply in recent years, weakening an important stabilising component. As a result, Kerala’s own revenue now finances just over half of its revenue expenditure, showing a structural squeeze, given the varied expenditure needs of the State.

On the expenditure side, total spending is budgeted at about ₹2.40 lakh crore, nearly 14% of GSDP. Revenue expenditure dominates, while capital outlay remains modest at ₹19,451 crore. Fiscal deficits are contained within fiscal responsibility norms at 3.40%, emphasising stability.

An Elderly Budget as fiscal mainstreaming

With a rising share of the elderly population (30% old age dependency ratio), the composition of expenditure is inevitably tilted towards committed outlays. These are not discretionary choices but demographic necessities. Kerala’s budgetary requirements, therefore, differ fundamentally from those of younger States. The Reserve Bank of India’s State Finances report categorises Kerala as an ageing State, and the Budget reflects this reality clearly. Kerala’s consolidated Elderly Budget, amounting to ₹46,236 crore, about one-fifth of the total Budget marks an important shift and the social welfare pensions alone account for ₹14,500 crore. ₹30 crore subsidy support for organisations setting up old-age homes is another important initiative announced. New KFC scheme for senior citizens, offering loans up to ₹20 crore with 3% Interest subsidy, may encourage a second wave of demographic dividends and encourage entrepreneurship among them.

Women-centric

Kerala has been giving thrust to gender budgeting and this year it is at ₹5,587 crore. Initiatives such as the Chief Minister’s Sthree Suraksha Scheme (₹3,820 crore), Connect to Work, She-Work Spaces, and panchayat-level skill centres aim to support women’s labour force participation, particularly in the informal sector. Notably, the honorarium for ASHA and Anganwadi workers has been hiked to ₹1,000, and Anganwadi helpers will receive a monthly honorarium hike of ₹500, while noon-meal cooks’ daily wages have been increased by ₹25. A total of ₹20 crore allocated for women’s skill centres at the panchayat level. Notably, ₹7 crore allocated to support feature films by women directors to encourage women in this field. In an ageing economy, higher female labour participation is not merely a social goal but a fiscal necessity. ‘Work Near Home’ scheme to expand to 200 centres with ₹150 crore allocation may encourage women’s participation to a greater extent.

Climate vulnerability

The Budget’s environmental allocations acknowledge that climate shocks now carry persistent fiscal costs. The first batch of houses for victims of the 2024 landslide in Wayanad will be handed over soon. The ₹75-crore Kuttanad Package addresses chronic flooding and livelihood stress in one of the State’s most fragile regions. ₹50 crore for flood control works in Kuttanad is a necessity to mitigate the losses. ₹153 crore for coastal development initiatives is required in the back of increasing flooding events due to climate induced vulnerabilities. Another important step is the announcement of ₹100 crore for projects to mitigate human–wildlife conflict.

Rethinking growth strategies in an ageing economy

Kerala has a broader structural issue. As an ageing state, it operates with far tighter fiscal space. Therefore, the central transfers are required for equalisations, and the 16th Finance Commission must explicitly incorporate the share of the elderly population into its transfer criteria to ensure more efficient resource allocation. The Budget considers a robust healthcare system and extending working lives and enhancing their productivity. Kerala’s New Innings programme provides a framework for this. Finally, since ageing inevitably reduces labour supply, sustained efforts to raise female labour force participation become indispensable. In this respect, Kerala’s women-centric budgetary initiatives complement its demographic strategy well.

The author is an Assistant Professor at Gulati Institute of Finance and Taxation (GIFT)