Kerala Seeks Extra Borrowing Limit Amid GST Changes, U.S. Tariff Impact

Quick Summary

• Kerala has submitted a supplementary memorandum to the 16th Finance Commission seeking additional grants and a temporary extra borrowing limit of 0.5% of GSDP under Article 275 of the Constitution.
• The memorandum addresses losses from GST slab restructuring,estimated at ₹8,000 crore to ₹10,000 crore annually,and export losses due to US reciprocal tariffs.
• The State estimates revenue loss due to US tariffs at ₹2,400 crore in FY 2025-26.
• Losses are expected to impact production and employment in key sectors such as marine products, spices, cashew, textiles, coir, plantation crops, and rubber.
• Kerala stressed worsening vertical fiscal imbalance (VFI) as compensation cess from items under the 28% GST rate has stopped.
• suggested using the extra borrowing limit for improving export infrastructure like ports and cold chains while exploring new markets.
• Initially requested an increase in States’ share in divisible tax pool from current 41% to 50%.

Indian Opinion Analysis

Kerala’s appeal reflects its concern about mounting fiscal pressures stemming from diverse economic challenges-GST rate revisions and adverse international trade conditions. The request for additional grants highlights how national tax reforms like GST can disproportionately affect State economies with unique structural dependencies on certain industries or exports. Additionally, the call for enhanced borrowing capacity aligns with Kerala’s strategy to mitigate short-term disruptions by strengthening export-related infrastructure.

The broader implications suggest that States with higher reliance on trade-driven revenues may require tailored financial adjustments if geopolitical developments continue reshaping international markets unfavorably. This request also raises questions about equitable resource distribution between Union and States amid evolving economic contexts. Policymakers may need collaborative mechanisms that respond flexibly without compromising overall federal balance.Read more: [Link not provided]