# Ajayan | From a turtle trail to a proposed corridor for rare earths, Sunday’s Union Budget offered Kerala little more than tokenism. There was nothing of substance to cheer. Adding to the letdown, the 16th Finance Commission report tabled alongside the Budget delivered a severe blow, further dimming the State’s already fragile fiscal hopes.
With Assembly elections just months away, Finance Minister Nirmala Sitharaman’s Budget was read less as an economic document than as a political signal. For the BJP, still searching for firm footing in Kerala despite its breakthrough in Thiruvananthapuram corporation elections, the stakes were unmistakable. Coming on the heels of the Prime Minister’s formal launch of the Assembly campaign, expectations were high that the Budget would serve as an olive branch. Instead, it underscored that political messaging means little without real action.
An AIIMS, a high-speed rail line, further investment in the Vizhinjam International Transhipment Terminal, the wish list was long and familiar. Yet the Budget passed in silence. For Kerala’s lone BJP MP, who has repeatedly invoked AIIMS as a political refrain, that silence was not just telling; it was deafening.
After the LDF’s K-Rail proposal derailed amid public outrage, yellow stones turning up even in kitchens before the project was quietly abandoned, the promise of high-speed rail resurfaced. Fresh claims by Metroman E Sreedharan and a renewed pitch for another in the State Budget briefly revived the dream. The Union Budget, however, made no mention keeping the dream off track once again.
Beyond token allocations for khadi, handloom and coconut promotion, the Budget offered little relief. The lone note of freshness was an incentive for municipal bonds, an option Kerala had already flagged in its own Budget last week.
An equally telling blow came from the Finance Commission report, which brushed aside most of Kerala’s demands. Among them was the plea for a 50:50 sharing of the divisible pool of income tax and excise duties. Instead, the Commission froze the ratio at 59:41, further shrinking the States’ fiscal space. More damaging was its silence on cesses and surcharges, New Delhi’s most lucrative revenue stream, which remain outside the divisible pool.
Kerala, like several other States, had sought either their abolition or their inclusion in the pool, arguing that these levies steadily erode States’ rightful share. As a result, the share of gross tax revenue entering the divisible pool fell to 78.3%, pushing the effective devolution down to about 37% during the last panel’s term. Though fully aware of this distortion, the present panel chose not to correct it.
Non-tax revenue has quietly emerged as a major pillar of the Union government’s gross receipts. This also explains the Centre’s willingness to slash GST rates, moves that shrink the States’ tax share while leaving New Delhi largely insulated from the fallout.
The Finance Commission has also scrapped the revenue deficit grant, ignoring Kerala’s plea for its continuation. The decision draws the curtain on Rs 53,137 crore that flowed to the State over the past five years.
There is, however, a faint silver lining. Kerala’s share in the distribution of tax revenue among the States has inched up from 1.93% to 2.38%, a modest gain of about 0.46 percentage points over the previous Commission’s term.
The Commission has also recast the devolution formula by introducing new weighted parameters—per capita GSDP distance, population, area, demographic performance, and forest cover. While Kerala scores strongly on several of these counts, the framework penalises its successes. Declining fertility rates, long held up as a development achievement, are now read as a liability because of an ageing population. As a result, the weightage for demographic performance has been slashed to 10% from 22.5 in the previous Commission, draining Kerala’s potential earnings. The outcome is stark: Uttar Pradesh commands 17.62% of the pool, Bihar 9.95 and Madhya Pradesh 7.35, while Kerala is left with just 2.38%.