Expectations from Union Budget run high in poll-bound Kerala

At a pre-Budget consultation in New Delhi in early January, Kerala Finance Minister K.N. Balagopal lamented that Kerala was facing severe fiscal pressure due to “overlapping economic shocks” arising from the mid-year Goods and Services Tax rejig, consequences of the United States reciprocal tariffs, and adverse fiscal policies of the Centre. These, he had gone on to state, were “cumulatively weakening” Kerala’s revenue base, growth outlook, and fiscal sustainability.

As Union Finance Minister Nirmala Sitharaman presents the Union Budget 2026-27 on Sunday, expectations will be running high in election-bound Kerala. The report of the 16th Finance Commission, likely to be tabled in Parliament, pushes up expectations as the State is anticipating a better deal than it received under the 15th panel.

In January, Kerala had presented a hefty wish list to the Union Minister, which included a ₹21,000-crore ‘special fiscal correction package’ assistance for establishing a Defence R&D Corridor and a Rare Earth Corridor and an an additional borrowing space of 0.5% of Gross State Domestic product. Other expectations include State-specific rescue packages for cashew, coir and handloom. In addition to these, the list repeats the demands of previous years such as an All India Institute of Medical Sciences for Kerala and the Sabari Rail linking Angamaly and Erumely.

Among a slew of policy suggestions, Kerala has urged the Centre to institute ‘catastrophe bonds’ for addressing challenges in the event of natural calamities.

In general, Kerala’s business community will be expecting measures in the Budget that are designed to help out export-oriented sectors, given the implications and consequences of the United States tariff policies. According to the State government, the U.S. reciprocal tariff measures have adversely affected Kerala’s export-oriented sectors, including marine products, spices, cashew and textiles, causing an estimated additional loss of ₹2,500 crore annually.

Union Budgets in the immediate past had been largely disappointing for Kerala in terms of State-specific announcements and wish-list realisation. But with the State Assembly polls in the offing, the feeling is strong that Kerala will receive better attention this time.

In January, Prime Minister Narendra Modi had flagged off three new Amrit Bharat Express trains and a passenger train that were allotted for Kerala. During his visit to the State, he had also launched a clutch of sector-specific development projects.