Union Budget 2026-27: Kerala’s wish-list includes ‘Special Fiscal Correction Package,’ defence innovation corridor, revenue protection measures under GST

Kerala’s expectations from the Union Budget 2026-27 include a ‘Special Fiscal Correction Package’ to make up for “a severe resource gap of over ₹21,000 crore arising from the current year’s borrowing constraints,” the establishment of a defence research and development corridor linking Vizhinjam, Chavara and Kochi, and a ₹1000-crore Central assistance for developing a dedicated strategic rare earth corridor project to tap the State’s coastal mineral sand reserves.

The State’s wish-list, presented by State Finance Minister K.N. Balagopal at a pre-Budget meet convened by Union Finance Minister Nirmala Sitharaman in New Delhi on Saturday, also includes a roll-back of the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) scheme and restoration of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) framework.

Kerala’s long-standing demands for an All India Institute of Medical Sciences (AIIMS), the Sabari Rail project linking Angamaly and Erumely figure in the latest wish-list, alongside demands for “State-specific rescue packages” for traditional small-scale industries and a ₹1,000-crore allocation for mitigating human-wildlife conflict.

Mr. Balagopal said these proposals “are framed not as state-specific concessions but as contributions to national progress, with Kerala offering itself as a demonstrative site for scalable models.”

Kerala has requested the Special Fiscal Correction Package to “rectify” a shortfall resulting from a ₹17,000-crore cut in the State’s borrowing limit and the loss of ₹4,250 crore arising from the estimation of the Gross State Domestic Product (GSDP) using methodologies that deviate from the accepted recommendations of the 15th Finance Commission.

The defence R&D corridor would leverage existing assets such as the Naval Academy at Ezhimala, Naval Physical and Oceanographic Laboratory (DRDO-NPOL), the Cochin Shipyard, and BrahMos Aerospace Thiruvananthapuram Ltd (BATL).

The dedicated strategic rare earth corridor project would link Vizhinjam in Thiruvananthapuram district, Chavara in Kollam district, and Kochi for harnessing the potential of approximately 32.435 million tonnes of mineral sand reserves, including 1.9 million tonnes of monazite on the Kerala coast. “Approximately 25% of the rare earth oxides are Neodymium and Praseodymium, which are essential for producing permanent magnets used in defence, aerospace, and aeronautical applications,” according to the State.

On the fiscal front, the State has sought an additional borrowing space of 0.5% of the GSDP exclusively for capital expenditure to accelerate infrastructure development. Mr. Balagopal told Saturday’s meeting that Kerala faces “severe fiscal pressure due to overlapping economic shocks.” Observing that the Goods and Services Tax (GST) overhaul of 2025 has adversely impacted it, Kerala has urged the Centre to implement a ‘GST 2.0 revenue protection framework’ to prevent State-wise revenue shocks on account of rate rationalisation. Kerala has also reiterated the demand that the Central share under Centrally-Sponsored Schemes (CSS) should be increased from 60% to 75%.

Kerala has sought special packages for the plantation sector, specifically financial packages for replanting and rejuvenation, export promotion of tea, coffee and spices, and support for value addition and branding. The State has also repeated its demand for a special package for funding social safety nets for return migrants.

The State has also proposed the creation of a ₹1,000-crore Rubber Price Stabilisation Fund, jointly subscribed by the Centre, Kerala and rubber users. The State has also sought Central support to raise the support price from ₹200 to ₹250 per kg. In the case of paddy, Kerala has sought ₹2,000 crore to clear the outstanding liabilities of the Kerala State Civil Supplies Corporation (Supplyco) and establish paddy procurement and milling infrastructure.

In connection with the Vizhinjam seaport project, the State government has also sought Central investments in mother-ship building and defence and maritime security infrastructure in the Indian Ocean Region. Kerala has also reiterated the demand that the port be integrated with the Bharatmala project.