Kerala Budget: Pinarayi govt banks on infra push, KIFB projects to shore up finances

The Kerala government has declared a significant improvement in its fiscal position in the budget for 2025-26 after years of severe financial constraints.

The government has increased land tax by 50 per cent and imposed a higher tax on vehicles older than 15 years and on electric vehicles.

Finance Minister KN Balagopal emphasized that despite difficulties, the state successfully continued developmental and welfare activities. The government attributes this turnaround to increased tax revenue and prudent financial management. However, concerns persist over constraints on borrowing limits imposed by the Union government, impacting fiscal flexibility.

Battling Central government

Kerala has taken legal recourse against the Centre’s approach to fiscal federalism, particularly regarding loans availed by the Kerala Infrastructure Investment Fund Board (KIIFB) and the Kerala Social Security Pension Ltd (KSSPL), which were retrospectively included in the state’s borrowing limits.

The Supreme Court has referred this issue to a constitutional bench.

“The second Pinarayi (Vijayan) government assumed office at a crucial juncture. During this period, Kerala faced the most severe Central neglect in history. Despite a significant increase in the state’s own revenue, the reduction in Central allocations led to a severe financial strain. However, the government made every effort to ensure that this crunch did not affect development and welfare initiatives,” Balagopal told The Federal.

Also read: Centre neglect deplorable, but Kerala remains resilient: State FM

He said several key development projects were launched while the flagship projects of the previous government continued without disruption. Substantial spending was made in the social welfare sector. “Now, we have begun to overcome this intense financial crisis. The encouraging news of the budget is that our economy is becoming stronger,” he added.

Land tax hike

To bolster revenue, the budget has proposed a 50 per cent hike in basic land tax across all slabs. The lowest rate has been hiked from ₹5 per acre per annum to ₹7.5, while the highest slab has risen from ₹30 to ₹45 per acre per annum. This increase is justified by the rising value of land and its income-generating potential.

Also read: Kerala 'survives' only with help from Centre: Union Minister Kurian

KIIFB's focus on revenue

The Kerala Infrastructure Investment Fund Board (KIIFB) has sanctioned 1,147 projects worth ₹87,436.7 crores as of December 31, 2024, with ₹20,000 crores allocated for land acquisition for large development projects.

In a significant shift towards sustainability, the KIIFB is now focusing on revenue-generating projects. Traditionally dependent on budget allocations and interest-bearing loans, the KIIFB is undergoing a transformation to become a self-sustaining entity.

Projects such as K-FON, IT parks, industrial corridors and the TransGrid project have started yielding financial returns. Collectively, these initiatives have contributed ₹1,500 crores in revenue, strengthening the KIIFB’s financial base and reducing reliance on government funding.

Infrastructure development remains a priority, with significant allocations directed towards road and bridge projects. The long-awaited national highway expansion, supported by ₹6,000 crores from KIIFB, is set to enhance connectivity. The Hill Highway and Coastal Highway projects are progressing rapidly.

For government employees

The budget introduces several benefits for government employees, including a 2 per cent interest subsidy on home construction loans under the House Building Advance scheme, with ₹50 crore allocated for its implementation. Daily wage and contract employees will receive a 5 per cent salary hike, while an additional installment of Dearness Allowance for government employees and pensioners is set for disbursement in April.

Additionally, the government is exploring the feasibility of an assured pension scheme for employees under the New Pension Scheme (NPS), considering models adopted by other states.

IT sector

The IT sector has emerged as a crucial driver of economic growth, with multiple projects receiving substantial funding from the KIIFB. The IT parks in Kannur, Kollam and Kottarakkara under a revenue-generating model are expected to create new employment opportunities while attracting private investments.

The decision to allocate ₹1,000 crores as seed fund for local self-government institutions (LSGIs) taking up such projects demonstrates a forward-thinking approach to decentralised development.

Also read: Kerala | Additional Rs 100 cr alloted by state for LIFE project

Kerala's vital tourism sector

A new project seeks to develop basic tourism infrastructure by using empty and unoccupied homes across the state, thereby maximising their utility. In addition to providing revenue for the houseowners, this will help in ensuring the maintenance and safety of the house.

The Kerala Financial Corp has introduced a scheme to provide loans of up to ₹50 crores for hotel construction, with ₹20 crores earmarked for interest subvention. Additionally, ₹7 crores have been allocated for the 2025-26 edition of Kochi-Muziris Biennale, reinforcing Kerala’s global cultural presence.

Bedridden patients

The state is set to implement a comprehensive scheme for bedridden patients, integrating healthcare and social services to provide holistic care.

Additionally, the “New Innings” programme, with an allocation of ₹ 5 crores, encourages senior citizens to launch new enterprises, leveraging their experience and financial capabilities.

In the employment sector, the noteworthy “Vijnana Keralam” campaign aims to provide skill training to five lakh students in their final year of study. The campaign envisions linking students with professional mentors and ensuring campus placements, thus bridging the gap between education and employment.

Further, the FM said that the government has disbursed an amount of ₹33,210.68 crores in the past 42 months towards social security pension.

AI, cloud computing

The budget allocation of ₹15,205.5 crores to Local Self Government Institutions for the previous year is enhanced to ₹15,980.49 crores.

Recognising the potential of artificial intelligence, blockchain and cloud computing, the budget allocates ₹10 crores for fintech development. This is expected to drive innovation in financial services, benefiting startups and established institutions alike.

For Kerala's transport sector, the budget proposes a 50 per cent increase in road tax for private vehicles older than 15 years, discouraging the use of outdated, high-emission automobiles.

Maritime trade

Additionally, electric vehicle taxation will be rationalised based on vehicle cost, ensuring a balanced approach to green mobility.

To boost maritime trade, the government is investing ₹115.2 crore in the development of fishing harbours and non-major ports. Projects under the Sagarmala initiative will further enhance coastal infrastructure, positioning Kerala as a key player in regional logistics.