Kerala Finance Row Deepens: Government Orders Austerity, Slashes Plan Outlay
The financial strain on Kerala's state government has intensified as the ruling United Democratic Front (UDF) and the opposition Left Democratic Front (LDF) clash over the state's fiscal health. In a recent communication, the State Finance Department reiterated its annual directive to all government departments to exercise 'austerity' while preparing estimates for the 2027-28 Budget.
The directive comes amid an ongoing political spat between the UDF government, led by Chief Minister V.D. Satheesan, and the LDF, which ruled for the previous 10 years. Both coalitions have issued white papers to present their versions of Kerala's financial situation. The UDF's white paper, tabled in the state Assembly in June, claimed that the fiscal structure is under 'serious and growing strain'. In response, the LDF released its own 'White Paper of Facts', arguing that the state registered strong growth under its tenure.
Since taking over in May, the UDF government has taken steps to address what it describes as financial mismanagement by the previous administration. In the Revised Budget for 2026-27, presented on June 19, Chief Minister Satheesan, who also holds the finance portfolio, reduced the annual Plan outlay from ₹35,750 crore to ₹30,370 crore, citing a 'miscalculation' of anticipated revenue receipts by the previous LDF government.
The Finance Department's latest communication urges departments to 'prepare the Budget 2027-28 with austerity' given the financial constraints. It also advises dropping 'uneconomical schemes' and possibly deferring certain expenditures, including maintenance, that can be postponed. Departments have been told to accelerate revenue collection and list steps to recover arrears. According to a Comptroller and Auditor General (CAG) report for 2024-25 tabled in the Assembly on June 23, Kerala's revenue arrears stood at ₹41,188.44 crore as of March 31, 2025.
Furthermore, departments must submit estimates of Foreign Exchange Commitments and outgoes for the Centre's Foreign Exchange Budget, along with details of externally-aided projects and centrally-sponsored schemes. Deadlines have been set: non-Plan expenditure estimates by September 10, Plan expenditure by September 15, and revenue and other receipts by September 20.
