Kerala FM meets Sitharaman, discusses state's fiscal challenges

New Delhi: Kerala Finance Minister KN Balagopal informed Union Finance Minister Nirmala Sitharaman of the state's economic issues on Wednesday and urged her to reinstate the previously reduced borrowing limits. Kerala's Left Democratic Front (LDF) government has often raised concerns about the BJP-led Centre's overall fiscal approach to the state, including lower borrowing limits.

During a meeting with Sitharaman, Balagopal raised various issues, including that the state is currently experiencing serious fiscal challenges, arising from multiple simultaneous shocks to state revenues and constraints on borrowing capacity.

At a briefing here, Balagopal mentioned the Centre's decision to cut the estimated borrowing limit for the fourth quarter of the current financial year ending March 31, 2026, and that the move has also come ahead of the state going for polls early next year, PTI reported.

"The estimated borrowing limit for the state for the last quarter of the current financial year is 12,516 crore, for which a formal request was submitted to the Government of India. The state has since been accorded borrowing consent for only Rs 5,636 crore, after effecting a deduction of Rs 5,944 crore, which was unexpected in the last quarter of the financial year," he said in a representation submitted to the Union Finance Minister.

According to Balagopal, the magnitude and timing of the deduction have resulted in severe fiscal stress for the state.

"The combined impact of GST rate rationalisation, adverse trade developments has created an unprecedented fiscal squeeze that threatens the state's ability to maintain essential services and honour pre-committed liabilities," the minister said.

The recent GST (Goods and Services Tax) rate rationalisation has resulted in revenue losses for Kerala.

"The state, being heavily dependent on GST revenues, faces an annual shortfall of approximately Rs 8,000 crore during the financial year 2025-26. This reduction substantially narrows Kerala's fiscal space to sustain essential public services, welfare schemes and committed developmental expenditure," as per the representation.

Further, the minister, in the representation, said reciprocal tariff measures imposed by the US have adversely impacted Kerala's export-oriented sectors.

"This is estimated to result in an additional annual loss of approximately Rs 2,500 crore, further weakening both the tax base and growth outlook of the state," he said.