Union Budget Leaves Key Demands of Kerala, Tamil Nadu Unaddressed
Kerala misses out on AIIMS and high-speed rail corridor
Two high-speed rail corridors announced for Tamil Nadu, but no word on Coimbatore, Madurai metros
Ahead of the Union Budget, poll-bound Tamil Nadu and Kerala—both heading to Assembly elections in three months—had high expectations. There was hope that the Centre would extend concessions that could also help the BJP project the Budget as an election plank in the states. The wish lists were long, with several demands linked to the larger question of sustaining fiscal federalism.
What followed, however, reinforced a familiar pattern in Centre–state relations. The Budget remained largely silent on state-specific concerns, particularly those raised by non-BJP-ruled states, underlining the increasing centralisation of fiscal decision-making. Despite repeated appeals for greater devolution, debt relief, and flexibility in borrowing limits, the Union government chose to stick to a one-size-fits-all framework, privileging macroeconomic consolidation over regional fiscal stress.
The sense of disappointment was most pronounced in Kerala, where none of the state’s key demands—ranging from special financial assistance to relief from stringent borrowing norms—were addressed. For the state government, the Budget served less as an economic document and more as a political signal, highlighting the shrinking space for cooperative federalism and the growing use of fiscal policy as a tool of political management.
Kerala’s disappointment with the Union Budget was rooted not only in omissions, but in what the state sees as a systematic sidelining of its long-standing demands. One of the most prominent among them is an AIIMS. Despite years of advocacy, Kerala once again found itself left out—even when the Union government announced a new All India Institute of Ayurveda. “While we were waiting to see where the All India Institute of Ayurveda would be set up, we hoped for Kerala. We have a long tradition of Ayurveda, but I did not hear Kerala being mentioned,” Congress MP Shashi Tharoor said while reacting to the Budget. The sense of exclusion was visibly reflected in Parliament, where MPs from Kerala repeatedly chanted “Kerala, Kerala” as Finance Minister Nirmala Sitharaman presented her speech.
Infrastructure projects added to the state’s list of concerns. The proposed high-speed railway corridor linking the north and south of Kerala has long been politically contentious, with the Centre earlier rejecting the state government’s proposal. Just two days before the Union Budget, the Kerala government announced plans to initiate a Regional Rapid Transit System (RRTS) in its own Budget. However, the Union Budget made no reference to the project. MPs from the state also flagged the absence of allocations for the development of the Vizhinjam Container Terminal and for railway expansion, sectors that Kerala argues are critical for its long-term economic growth.
The disconnect was sharpened by the fact that, ahead of the Budget, Kerala Finance Minister K N Balagopal had met Nirmala Sitharaman and submitted a memorandum seeking a Rs R21,000-crore ‘special fiscal correction package’. According to the state government, none of the demands raised were reflected in the final allocations. “None of the demands Kerala presented have been considered. The Union government's approach will lead to an economic contraction, as it has allocated less money to various schemes. The allocation for the employment guarantee scheme has been cut heavily,” Balagopal said.
The Union Finance Minister also announced plans to expand ecologically sustainable tourism trails, including turtle trails along key coastal nesting sites. Under the proposal, Kerala has been included along with Odisha and Karnataka, marking one of the few initiatives in the Budget where the state found explicit mention.
The Kerala BJP, however, came out strongly in defence of the Union Budget, blaming the state government for the alleged underutilisation of central funds. The party argued that Kerala had failed to effectively implement several Union government schemes already sanctioned for the state.
“The irresponsibility of the state government has resulted in many central schemes being neglected and funds remaining unutilised. For better implementation of central projects, an NDA government must come to power in Kerala,” said Rajeev Chandrasekhar, the BJP’s state president.
Taken together, the omissions have reinforced Kerala’s argument that the Union government’s fiscal strategy prioritises central control and headline macroeconomic indicators over region-specific needs, further straining the idea of cooperative fiscal federalism—especially in opposition-ruled, poll-bound states.
Ahead of the Budget, Tamil Nadu Chief Minister M K Stalin took to X to reiterate the state’s key demands, including the release of Rs 3,858 crore in education funds allegedly withheld by the Union government and approval for the Coimbatore and Madurai Metro projects. The Centre’s refusal to sanction the Madurai Metro has been a politically charged issue in the state, with the DMK framing it as evidence of discrimination against non-BJP-ruled states.
While several of Tamil Nadu’s demands did not find a mention in the Budget, the state secured some high-profile infrastructure announcements. Two high-speed rail corridors—Chennai–Hyderabad and Chennai–Bengaluru—were proposed, signalling the Centre’s push for inter-state connectivity in the southern region. In addition, the rare earth mineral corridor involving Tamil Nadu, Kerala, and Odisha emerged as a significant allocation, reflecting the strategic and industrial importance the Union government now attaches to critical minerals.
However, analysts note that while infrastructure projects offer long-term economic potential, the absence of clarity on fiscal transfers and withheld funds keeps alive the broader debate over whether the Centre is prioritising politically visible capital expenditure over addressing states’ immediate fiscal and governance concerns.
The most consequential demand raised by states—cutting across political affiliations, and not limited to Tamil Nadu or Kerala—relates to the share of the divisible pool of central taxes. A majority of states have been pressing for their share to be raised to 50 per cent from the current 41 per cent, arguing that the existing formula does not adequately reflect the expanding expenditure responsibilities of state governments.
However, the Finance Commission has given little weight to this demand. By retaining the current level of devolution, the Centre has effectively reinforced its fiscal dominance at a time when states are expected to shoulder increasing costs in areas such as health, education, welfare delivery, and infrastructure. Critics argue that this approach weakens the spirit of fiscal federalism and leaves states with shrinking fiscal space, even as the Union government continues to expand the scope of centrally sponsored schemes.
