Budget 2026–27: Austerity takes centre stage

Time of India

4 days ago

Thiruvananthapuram: The state finance department has begun preparations for the 2026–27 budget with a no-frills circular that highlights Kerala's deepening fiscal constraints.
Issued on July 21, the directive includes sweeping instructions to all departments: Freeze non-plan revenue spending at current levels (excluding salaries), halt routine budget escalations and justify every proposed outlay with evidence.
The circular carries added weight as it sets the tone for the final budget of the second Pinarayi Vijayan-led LDF govt—a political milestone unfolding under visible economic pressure.
With the state's "ways and means" position under strain, the message is clear: No room for expansion, only consolidation. Departments have been warned against inflating estimates or relying on assumptions. Revised estimates for 2025–26 and proposals for 2026–27 must strictly reflect post-budget developments, sanctioned changes and actual disbursals. The habitual practice of incremental budgeting — often divorced from spending patterns— has been flagged, with the govt acknowledging the risk it poses to cash-flow planning and fiscal predictability.
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Timelines for budget submissions are rigid. All proposals must be routed electronically via the budget monitoring system by Sept. Schemes lacking statutory backing or pending administrative sanction will not be entertained.
The circular underscores austerity but offers few solutions to address the underlying revenue crunch. Department heads have been instructed to enforce economy measures, drop redundant schemes and identify surplus staff for redeployment where functions have been pruned.
While it rules out retrenchment, the emphasis on administrative "efficiency" signals tighter workforce controls ahead.
Departments must also submit detailed breakups of tax and non-tax arrears, loan recoveries and lapses in collections. Persistently underutilized schemes or those with excessive allocations are under scanner. Proposals lacking clarity or supporting data will be rejected outright—a move likely to curb padding, but which could also delay new social sector initiatives.
The circular makes room for some policy directives, including the mandatory allocation of 0.05% of departmental outlays to promote Malayalam, the official language. Departments managing public assets—including schools, hospitals and key infrastructure—must now submit explicit asset maintenance plans, reflecting concerns that basic upkeep has taken a backseat to flashy new projects.
In a nod to long-standing demands for better visibility of social spending, departments must now detail the gender and child-specific shares of their allocations.
However, without real shifts in resource distribution, these provisions risk remaining on paper.
Centrally sponsored and externally aided schemes will face tighter scrutiny, with the finance department demanding a clear breakdown of Central and state contributions to prevent duplication and leakage. Local bodies must prepare separate budgets to reflect devolved functions and decentralized expenditure.
What stands out is not just the detail, but the defensive tone — a circular that reads less like a roadmap for progress and more like damage control. With elections due next year, the LDF govt appears determined to present a budget that prioritizes caution over ambition. Whether this reflects responsible planning or a govt boxed in by its own financial decisions remains an open question.