Kerala’s Budget 2026 was presented in a context of growing fiscal challenges. In the weeks before the budget, the Centre for Budget Studies, CUSAT, organised a pre-budget discussion series titled “Before the Budget: Shaping Kerala’s Fiscal Future”, bringing together several experts. The discussions were focused on key challenges facing the state, including Kerala’s fiscal stress, demographic ageing, the impact of GST, and major changes in the labour market. A clear understanding emerged from the discussion that Kerala’s financial difficulties are not temporary but arise from long-term factors. Therefore, the expectation was not for a flashy budget, but for one that clearly explains how the government plans to address these long-term challenges while continuing Kerala’s welfare model.
Alongside expert deliberations, the pre-budget period also saw a CBS survey that offered an important picture of citizen expectations. The survey shows that respondents strongly support government action when it improves long- term welfare through better public systems, stronger labour protections, and fairer market regulation. The strongest public backing is seen for improving the quality of education, strengthening MSMEs, improving fisheries and supply-sector workers’ conditions, expanding insurance coverage for lifestyle diseases, and ensuring the quality of agricultural imports. There is also a clear demand for regulation of rising extra charges in online delivery platforms and multiplexes, along with strong support for legal protection for gig workers in taxi and delivery services. At the same time, the survey highlights that public trust in intervention depends on perceived effectiveness. This is reflected in the comparatively more divided views on government intervention in controlling essential commodity prices. Views on Harita Karma Sena’s household waste collection services are mixed, suggesting uneven service delivery across regions. Overall, the findings indicate that citizens prefer policies that build employability, strengthen essential public services, and protect consumers and workers—while also expecting better implementation and accountability in government-led interventions.
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These public priorities also echoed the themes that emerged in the expert discussions, particularly around employment and labour market change. A central focus of the pre-budget discussion was the transformation of Kerala’s labour market. Experts pointed out that insecure informal employment is no longer limited to low-skilled sectors, with gig and platform-based jobs spreading even among educated workers. Alongside this, the discussion highlighted the growing importance of the care economy. The ageing population and rising care needs were seen as a major barrier to women’s participation in the workforce. Against this backdrop, there was an expectation that the budget would signal a shift away from isolated employment schemes towards an integrated labour market strategy encompassing skill development, employment security, and institutional support for women’s work.
The budget responds to these concerns in a recognisable manner. Employment generation, skill development, and support for self-employment continue to feature prominently. Allocation for skill development institutions and welfare schemes is largely maintained, while women-oriented programmes and social security measures were expanded. The budget acknowledges the rising demand for care and social protection and continues allocations for health, pensions, and social security. In this sense, the budget broadly aligns with the survey’s emphasis on strengthening employability, protecting workers, and expanding essential services. However, the survey also suggests that citizens increasingly judge intervention by visible outcomes, meaning that the effectiveness of implementation will be crucial in sustaining public trust.
A second major theme in the discussion was concerned with expenditure composition and fiscal flexibility. Experts strongly challenged the narrative that Kerala’s fiscal difficulties stem primarily from excessive welfare spending. Revenue expenditure on health, education, and social protection was widely defended as developmentally necessary, particularly in the context of an ageing population. Simultaneously, there was an expectation that the budget would emphasise improvements in the quality of expenditure through better targeting, administrative reforms, and gradual restructuring of pensions and public sector enterprises. The budget broadly aligns with this perspective. Welfare expenditure is protected, pensions and social security allocations remain substantial, and capital expenditure shows a modest increase relative to previous years.
Revenue constraints, particularly those arising from the GST regime and declining central transfers, constituted one of the strongest areas of consensus in the pre-budget discussions. Kerala’s consumption-oriented economy was widely understood to place the state at a structural disadvantage under GST, compounded by delays in IGST settlements. Demographic changes further reduce the state’s share in Finance Commission transfers, thereby narrowing fiscal space. While the budget clearly articulates these concerns and situates Kerala’s fiscal stress within the broader context of fiscal federalism, it offers limited new mechanisms to address them.
Tourism and non-tax revenue are areas where the budget most closely reflects pre-budget expectations. Experts had called for a shift towards high- value tourism and better use of public assets to raise revenue. The budget gives importance to tourism development and recognises the importance of non-tax revenue. Decentralisation was also discussed extensively before the budget, and the budget continues to provide substantial funds to local self- governments.
Overall, the budget shows a clear understanding of Kerala’s long-term challenges. The budget focuses more on stabilising the present than reshaping the future. At the same time, both the expert discussions and the pre-budget survey point to a consistent message: citizens remain supportive of government-led welfare and regulation, but they expect quality, fairness, and accountability in return. Kerala’s fiscal future will therefore depend not only on protecting welfare spending but also on improving the effectiveness of public systems and ensuring that interventions translate into visible, consistent outcomes across regions.
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