By P. Sreekumaran
THIRUVANANTHAPURAM: The Union Budget was a big let-down for Kerala. The State had, however, pinned high hopes on at least the 16th Finance Commission addressing its concerns. That was not to be either.
The Commission has followed in the footsteps of the Union Budget by refusing to address the concerns of the State. The Commission’s recommendation that the Centre retain 41 per cent share of tax devolution to States, as has been the case since 2021, was an unfriendly act against a State which has been getting a raw deal from the Union Government over the years. Kerala had demanded that its share of the divisible tax pool, cut to 1.92% under the 15th Finance Commission, should be raised to at least 2.8%. That the 16th FC raised it to 2.382 is the only silver lining that has come the State’s way.
And, to add insult to injury, the Union Finance Minister has promptly announced that the Union Government has accepted the Finance Commission’s recommendations!
“The Government has accepted the recommendation of the Commission to retain the vertical share of devolution at 41 per cent,” Union Finance Minister Nirmala Sitharaman said in her Budget speech. “As recommended by the Commission, I have provided Rs 1.4 crore to the States for FY 2026-27 as Finance Commission Grants. These include Rural and Urban Local Body and Disaster Management Grants.” During the Commission’s previous visit to the State in December 2024, Kerala had urged it to raise the share of the States in the divisible tax pool from 41% to 50% and rework the formula used for resource sharing among States.
In September 2025, the Kerala Government had submitted a supplementary memorandum seeking supplementary grants and eligibility for a “temporary extra borrowing limit” of 0.5 % of the Gross State Domestic Product(GSDP) to help it absorb the losses arising from the Goods and Services Tax(GST) slab rejig and the US reciprocal tariffs.
The 16th FC submitted its report to the President on November 17, 2025, which was tabled in Parliament on the day the Budget was presented – on Sunday, February 1, 2026. Significantly, it noted that the only “instrument” available to the Commission to assist the States was its share in the divisive pool. But it was lip service pure and simple – especially in the case of Kerala, which literally got it in the neck – both from the Budget and the 16th FC.
The Commission has tweaked the formula and weightages that decide the division of that 41 per cent share between States.
A State’s population now accounts for 17.5% of the weightage up from the previous 15%. Its demographic performance – how successfully it has managed to contain population growth – has a lower weightage of 10 % from the previous 12.5 %. The area of the State has been granted a 10% weightage by the FC as compared to 15 % previously.
A State’s forest cover now receives a 10% weightage – the same as earlier. The State’s per capita GSDP difference – the difference between a State’s average per capita income and that of the State with the highest per capita income- has the highest weightage of 42.5 per cent, down from 45 per cent earlier.
The 16th FC has replaced the previous ‘tax and fiscal efforts’ category , which had a weightage of 2.5 per cent, with a ‘contribution to GDP’ that carries a 10% weight.
That is the only saving grace for the Southern States. Under this new formulation, all the five Southern States – Kerala, Tamil Nadu, Karnataka, Telangana and Andhra Pradesh – have seen their shares in the devolution amount grow.
KERALA’s FEAT: This is good news which the critics and detractors of the LDF Government will find it hard to digest. The Kerala economy has posted a “strong growth” in 2024-25 with the Gross State Domestic Product(GSDP) registering 6.19 growth in real terms, said the Economic Review 2025 tabled in the Assembly recently. The Review highlighted the need for “resilient, innovative and forward-looking financial strategies” to tackle the fiscal challenges.
At current prices(adjusted for inflation) the GSDP clocked a growth of 9.97 %. The State’s Gross State Value Added(GSVA) – the total value of goods and services produced in the economy – went up to 6.59 % in 2024-25 as against 6.34 % in 2023-24.
The Review, however, stated that the “realization of Kerala’s developmental aspirations and its path to economic recovery will significantly hinge on collaborative engagement with the Union Government and prudent management of available resources. The State hopes the Union Government will fully imbibe the spirit animating the Review’s fervent plea!
The document has a word of praise for growth across the sectors, which continue to be dominated by the services sector. This has been made possible by the spillovers of proactive policy interventions, it added.
“The growth of GSDP across sectors reveals strong positive growth in 2024-25, the same as in 2023-24. The primary sector posted a robust growth of 2.36% in 2024-25 in real terms as against 0.24 % recorded in 2023-24. The secondary sector grew at 7.87% in 2024-25 in real terms, as against 9.74%in 2023-24.
Within the primary sector, agriculture and allied activities grew at 2.14 % while fishing and aquaculture grew at 10.55 %.
Meanwhile, Kerala’s total revenue receipts posted a 0.3% increase in 2024-25, even as the declining trend in Central transfers continued. In fact, Central transfers plummeted by 6.15% in 2024-25 over 2023-24. Revenue receipts went up to Rs 1, 24, 861.07 crore in 2024-25. In 2024-25, the State’s own tax revenue rose to 61.38% of the State’s total revenue.
Receipts from lottery accounted for Rs 12,711.18 crore of the Rs 16,486.62 crore earned as non-tax revenue. Lottery revenue itself grew at 1.44%. (IPA Service)
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