Kerala is the only state to bear 25 per cent of land acquisition costs, and has already paid Rs 5,580 crore out of an approved Rs 6,769 crore.
Thiruvananthapuram (PTI) Kerala Chief Minister Pinarayi Vijayan on Wednesday accused the Union government of imposing what he described as a "financial blockade" on the state, warning that sustained cuts in borrowing limits and central transfers are severely affecting Kerala's public finances and development plans.
Addressing a press conference here, Vijayan said the Centre's actions go against the spirit of federalism and have placed states like Kerala under growing financial stress, despite their efforts to improve revenue collection and manage expenditure responsibly.
"The Centre is speaking about development on one side, while on the other side it is trying to financially choke states like Kerala," Vijayan said. "What we are asking for is not charity, but our constitutional right," he said.
The chief minister said Kerala's borrowing capacity has been repeatedly reduced by treating loans raised by state-backed agencies such as the Kerala Infrastructure Investment Fund Board (KIIFB) as part of the state's own debt.
This approach, he said, contradicts the Reserve Bank of India's long-standing position that government guarantees and direct borrowings are not the same.
According to Vijayan, the Centre has retrospectively cut Kerala's market borrowing limit from 2021 22 onwards by counting KIIFB loans as state debt.
In the financial year 2025 26 alone, the state's borrowing limit has been reduced by Rs 14,358 crore. This includes deductions linked to KIIFB borrowings and pension-related agencies.
"These unilateral decisions have sharply restricted our ability to raise funds for development," he said.
The CM also pointed to additional reductions imposed under the Guarantee Redemption Fund (GRF), despite Kerala having already set up the fund and deposited Rs 250 crore. He said irrational conditions were imposed, leading to a further cut of Rs 3,323 crore from the borrowing limit.
Vijayan said Kerala's fiscal position has been further weakened by reductions in central transfers. He noted that the state's share of divisible central taxes has steadily declined -- from 3.05 per cent during the Eleventh Finance Commission period to 1.92 per cent under the Fifteenth Finance Commission.
"As recently as four years ago, around 45 per cent of Kerala's total revenue came from the Centre. Today, that figure has fallen to between 25 and 30 per cent," he said. "This means the state now has to find nearly three-fourths of its revenue on its own."
At the same time, the chief minister highlighted that the Left Democratic Front (LDF) government has significantly improved Kerala's own tax revenue. He said own tax collections increased from Rs 47,000 crore in March 2021 to nearly Rs 80,000 crore now, calling it the result of "systematic and disciplined financial management".
Despite this, Vijayan said the Centre's policies are negating the gains made by the state. He pointed to losses arising from changes in Goods and Services Tax (GST) rates, which he said could cost Kerala around Rs 8,000 crore in the coming financial year, with no compensation mechanism in place.
The chief minister also referred to cuts made under the Integrated GST (IGST) settlement. In April 2025, the Centre adjusted Rs 965.16 crore citing technical reasons, a move Vijayan said hit Kerala particularly hard as a consumer state dependent on IGST transfers.
"These sudden recoveries disrupt our budget planning and push the state into uncertainty," he said.
Vijayan further said Kerala's export sectors -- including marine products, spices, cashew and textiles -- have suffered due to global trade challenges, including import restrictions imposed by the US, leading to an estimated annual loss of Rs 2,500 crore.
He also criticised the Centre for including Kerala's contribution towards national highway land acquisition within its normal borrowing limit.
Kerala is the only state to bear 25 per cent of land acquisition costs, and has already paid Rs 5,580 crore out of an approved Rs 6,769 crore.
Treating this investment as a loan, he said, discourages states from supporting major infrastructure projects.
"When amounts are cut under each head in this manner, what Kerala is facing is a deliberate financial blockade. Due to the Centre's policy, Kerala has suffered a total resource loss of Rs 1,07,513 crore in recent times... We will overcome the Centre's financial blockade through people's resistance. Political conspiracies will not succeed against the willpower of Kerala, which has survived floods and pandemics," Vijayan said.
He warned that continued financial constraints could slow down development in sectors such as health, education and road infrastructure.
"The Centre must immediately end this discrimination," Vijayan said, calling for the restoration of Kerala's IGST share and borrowing rights.
