Kerala Finance Minister Meets Sitharaman, Flags State’s Fiscal Challenges

New Delhi: Kerala Finance Minister KN Balagopal on Wednesday met Union Finance Minister Nirmala Sitharaman to highlight the state’s fiscal challenges and urged the Centre to restore the borrowing limits that were recently curtailed.

The LDF -led Kerala government has repeatedly raised concerns over the Centre’s approach to borrowing limits and overall fiscal policy affecting the state. During the meeting, Balagopal detailed multiple challenges, including serious fiscal stress arising from simultaneous shocks to state revenues and restrictions on borrowing capacity.

At a briefing, Balagopal noted that the Centre had cut the estimated borrowing limit for the fourth quarter of the current financial year ending March 31, 2026. He pointed out that this decision came ahead of Kerala’s upcoming polls.

"The estimated borrowing limit for the state in the last quarter of the current financial year was 12,516 crore rupees, for which a formal request was submitted to the Government of India. However, the state has been granted borrowing consent for only 5,636 crore rupees, following an unexpected deduction of 5,944 crore rupees in the final quarter,' Balagopal said in a representation submitted to the Union Finance Minister.

He added that the magnitude and timing of the deduction have caused severe fiscal stress. "The combined impact of GST rate rationalisation and adverse trade developments has created an unprecedented fiscal squeeze, threatening the state’s ability to maintain essential services and meet pre-committed liabilities,' the minister said.

Kerala, which relies heavily on GST revenues, is expected to face an annual shortfall of around 8,000 crore rupees in 2025-26 due to recent GST rate rationalisation. This reduction, Balagopal noted, significantly limits the state’s fiscal space to fund essential public services, welfare schemes, and developmental projects.

Further, the minister highlighted the adverse impact of reciprocal tariff measures imposed by the US on Kerala’s export-oriented sectors, estimating an additional annual loss of approximately 2,500 crore rupees, which further undermines the state’s tax base and growth prospects.