THE revised Keralam budget presented by the UDF Chief Minister, VD Satheeshan, is politically retrograde, empty in economic arithmetic, and scandalous, with two tales of corruption. Let us begin with the two scandals that broke out while the budget was being presented and debated in the Assembly.

The budget opened with the alleged fiscal bankruptcy of the previous government. Yet it did not propose any new measure to mobilise additional revenue, other than the optimistic assumption of higher buoyancy in existing taxes. Paradoxically, the major tax proposal was a reduction in the tax rate on low-alcoholic beverages, other than wine and beer, from 210 per cent to 120 per cent, supposedly to encourage responsible drinking.

REVENUE CONCESSION TO DISTILLERIES

The major beneficiaries of the above move are distilleries, particularly the Bacardi company. Its application for permission to import low-alcoholic beverages into Keralam had been repeatedly rejected by the LDF government.

The previous LDF government had introduced a separate category for low-alcoholic beverages, other than beer and wine, in order to promote horti-liquor and horti-wine produced by farmers. The tax rate for horti-wine was fixed at 85 per cent. However, permission was denied to low-alcoholic cocktails produced by Bacardi because the tax rate for such products was never fixed.

The Bacardi file lay buried for three years. Within the first week of the new government, the file was resurrected, and the proposal for a reduction in the tax on low-alcoholic beverages was included in the budget without discussion within the UDF, not even with the Excise Minister, who was his own cabinet colleague. The Leader of the Opposition, Pinarayi Vijayan, raised the allegation of corruption on the floor of the House itself.

There was widespread protest across Keralam. Even some leaders of the ruling front cried foul. Yet the new Chief Minister remained insistent, and the Finance Act with the lower tax rate was passed. The only concession made was that the date of notification of the new tax rate was not announced. Never before in the history of Keralam has a tax proposal attracted allegations of corruption.

VIZHINJAM PORT FOR SALE

Even before the scandal over low-alcoholic beverages subsided, a new scandal broke out. Adani Vizhinjam Port Private Ltd (AVPPL), which under a PPP agreement with a Keralam government entity is constructing and managing the Vizhinjam Port, sold 49 per cent of its shares to Mediterranean Shipping Company. The concessionaire had not obtained permission from the owner of the port, the Government of Keralam, as mandated in the PPP agreement. To understand the connection between this issue and the new budget proposals, we must revisit the history of the Vizhinjam Port.

Vizhinjam Port was originally proposed under the landlord port model by the V. S. Achuthanandan government (2006–2011). Under this model, the Government of Keralam would build the port and then select a private company through an open tender to manage it on a revenue-sharing basis. The proposal was scuttled at the last moment by the Congress-led Union government because the company that won the tender to construct the port had Chinese connections.

CONGRESS HANDS OVER VIZHINJAM TO ADANI

Then came the Oommen Chandy UDF government (2011–2016). The UDF changed the entire port model. It entered into a deal with Adani Group under which Adani would build and manage the port for 40 years. For the first 30 years, the Government of Keralam would receive no profit. Strangely, Adani would invest only around Rs 2,500 crore, roughly 30 per cent of the total investment. The remaining investment would have to come from the Government of Keralam. The LDF condemned the Congress–Adani deal as an act of sea piracy.

At the same time, the LDF did not want the project to become entangled in endless litigation. Therefore, in its 2016 election manifesto, the LDF announced that it would honour the agreement signed by the UDF. The LDF government led by Pinarayi Vijayan (2016–2021) honoured that commitment. The first phase of the port was successfully completed, and construction of the second phase began. The port has already won international acclaim, and a record number of ships have berthed there for transshipment.

Adani’s total investment would only be about Rs 2,500 crore. The sale of 49 per cent of the shares for Rs 13,000 crore therefore implies a capital gain of more than ten times the original estimate of investment in less than ten years. This is precisely the kind of windfall that the LDF had accused Oommen Chandy of enabling through his arrangement with Adani.

THE BUDGET AND THE NEW SCANDAL

What is the connection between the Vizhinjam controversy and the new UDF budget? The budget’s most important proposal is the transformation of the entire state into a seaport city region. Not only Vizhinjam but other ports across Keralam are to be developed, modelled on Vizhinjam through backward linkages to logistics parks, industrial hubs, and transport infrastructure under corporate patronage. The Vizhinjam deal suggests that this new development paradigm could become an organised loot of public resources into private hands.

Strangely, the Adani company appears to have assumed that the consent of the Government of Keralam was a mere formality. The Opposition has linked this to a curious incident that occurred within days of the UDF victory. While the Congress high command was still debating the chief ministership of Keralam, VD Satheeshan reportedly made an unannounced trip to Mangalore in a chartered flight for a private meeting with the Adani team. Was the share transfer discussed there? The Chief Minister has yet to clarify whether the Adani company informally discussed the transfer with him. Only after the controversy erupted did the company submit a formal letter seeking government permission.

The Chief Minister has announced that the Empowered Committee will examine the matter and take a decision. The irony is that the committee consists of the Chief Minister, the Finance Minister, the Ports Minister, and the Law Minister. In this government, all four positions are held by the same person. Many people were surprised when the Chief Minister also chose to retain the Ports portfolio. Now everything appears to fall into place.

THE PUBLIC DEBT SYNDROME

How did the entire UDF paradigm of port-led development come to depend so heavily on corporate investment, leading to windfalls such as the one seen in Vizhinjam? The answer lies in the public debt narrative that the UDF, together with the Union government, constructed in order to undermine the Pinarayi Vijayan government.

The budget opened with an inflated estimate of Rs 5.07 lakh crore as the state’s debt burden. Yet outstanding liabilities and public debt are not the same. Outstanding liabilities include both public debt and public account liabilities. Public account liabilities are largely deposits held in the treasury and were not treated as part of borrowing limits until 2017–18.

Long-term data show that Kerala ranks only 18th among Indian states in the growth of internal debt. Several major states have recorded much faster debt growth. Neighbouring states such as Tamil Nadu, Telangana, and Karnataka accumulated internal debt at a higher rate between 2014–15 and 2023–24. Kerala’s debt-to-GSDP ratio, which exceeded 40 per cent during the COVID-19 pandemic, had already begun to decline and had fallen to around 33.6 per cent by early 2026.

The panic over a debt trap has been deliberately cultivated for political purposes: to undermine the credibility of the Left government and, in particular, the Kerala Infrastructure Investment Fund Board (KIIFB), a public-sector institution created to mobilise resources independently for infrastructure development.

LAMPOONING KIIFB

Nowhere is the budget’s shift in fiscal vocabulary sharper than in its treatment of KIIFB. The speech refers to a looming repayment obligation of Rs 21,000 crore, an additional Rs 35,000 crore needed to complete ongoing KIIFB projects and announces an expert committee to undertake “comprehensive structural reforms and overhaul” of its operational framework. The budget speech argues that KIIFB’s off-budget borrowings carry interest costs significantly above normal sovereign borrowing and have “pushed the State’s borrowings and debt burden beyond permissible limits, triggering grave macroeconomic imbalances.”

This is almost exactly the language that the Union Finance Ministry has used against KIIFB for nearly a decade. KIIFB was created precisely to overcome the fiscal constraints faced by a welfare-oriented state government and to finance infrastructure investment that the revenue account alone could never support.

The budget and the white paper that preceded it ignore the fact that, whatever governance weaknesses KIIFB may have, it has been a successful financial innovation capable of mobilising large-scale resources. The budget’s most significant achievement is the discrediting of this institution. As a result, the new government has weakened its own bargaining power in dealing with corporate investors.

KEY FEATURES OF THE BUDGET

The revised budget for 2026–27 operates at two levels that cannot easily be reconciled. On the one hand, it emphasises crisis and constraint, justifying cuts in the plan outlay, the restructuring of KIIFB, and the attribution of fiscal difficulties to the previous government. On the other hand, it is filled with the rhetoric of abundance and ambition, celebrating dozens of hubs, missions, corridors, and urban projects.

A state described as fiscally constrained, with committed expenditure absorbing 77 per cent of revenue receipts, capital expenditure reduced to 1.3 per cent of GSDP, and growing demands for welfare spending, simply does not possess the fiscal space required to finance the transformation promised in the speech. What is missing is either a serious strategy for revenue mobilisation or access to the very development finance mechanism that KIIFB was designed to provide.

As a result, the budget offers symbolic abundance financed by token allocations, alongside a real contraction in the plan outlay. Its defining feature is expenditure compression, visible in unfunded welfare promises such as the Women’s Security Monthly Payment scheme and other welfare “guarantees” made during the election campaign. Even VB GRAMG receives only half the amount required to complement the central allocation.

AGENDA OF PRIVATISATION

These financial pressures push the budget toward an agenda of privatisation. Public-sector land and departmental land accumulated over decades are being aggregated into a “land bank” available for fast-tracked, single-window clearance to private investors. This risks converting the public balance sheet into a subsidised land reserve under the language of “unlocking” idle assets. The speech offers no parallel commitment to revenue-sharing, equity participation, or community consultation.

SILENCE ABOUT THE BJP GOVERNMENT

Strangely, the budget is almost completely silent about the BJP-led Union government. The only critical reference to the Centre appears in the announcement regarding the inadequate allocation for VB GRAMG. The understanding between the BJP and Congress at the time of election became visible in around thirty constituencies with the election results. The soft Hindutva approach has continued into the tenure of the UDF government.

Kerala’s fiscal predicament is real and deserves serious attention. Yet the budget largely ignores the deeper imbalance in Centre–State financial relations. Instead, it adopts the language of fiscal orthodoxy to discipline the state’s own development institutions while simultaneously invoking the language of mega-project ambition to conceal a shrinking developmental outlay. That combination is a recipe for disaster.