Kerala Chief Minister Pinarayi Vijayan has written to Prime Minister Narendra Modi, expressing serious concerns over the Centre’s proposed revision of the Goods and Services Tax (GST) rate structure. According to Vijayan, such a move could result in a significant reduction in the state’s revenue, which would in turn affect Kerala’s ability to sustain its welfare programmes and manage its public finances effectively. He warned that this situation could undermine the economic stability of the state, as welfare schemes that support vulnerable communities rely heavily on the funds collected through GST.
In his letter, the Chief Minister sought the Prime Minister’s immediate intervention, urging the Union government to carefully assess the likely revenue losses that states such as Kerala might face once the GST rates are revised. Vijayan emphasised that adequate compensation must be provided to ensure that states are not left financially crippled. He highlighted that he had already written to Modi earlier, bringing attention to these pressing concerns. Addressing the media in Thiruvananthapuram, Vijayan reiterated that the Centre has an obligation to protect the financial stability of states that may be disproportionately affected by these changes.
The Chief Minister also pointed out that the current 50:50 division of GST revenue between the Centre and the states has already created shortfalls in state-level income. He referred to the warning issued by state Finance Minister KN Balagopal, who said that the proposed GST reforms could lead to the most severe financial crisis for states since India’s independence. Vijayan noted that Prime Minister Modi had recently mentioned plans to review the GST structure in his Independence Day speech, and he acknowledged that discussions on this matter were underway in the State Finance Ministers’ Committee. With a GST Council meeting expected soon, Vijayan expressed grave concern over the consequences of the proposed revisions.
While the Chief Minister welcomed reforms aimed at reducing the tax burden on essential goods and thereby benefiting ordinary people, he stressed that such measures must not come at the expense of the state’s financial health. He argued that any revenue losses resulting from lower tax rates must be compensated by the Union government; otherwise, states would struggle to continue their welfare initiatives for the poor and vulnerable. He warned that without sufficient compensation, critical programmes could be disrupted.
In his latest letter, Vijayan also urged the Prime Minister to ensure that the benefits of lower GST rates actually reach the common people through reductions in commodity and service prices. He reminded the Centre that states already have limited capacity to mobilise revenue when compared to their high expenditure responsibilities, especially in key socio-economic sectors like healthcare, education, and welfare. Additionally, restrictions on borrowing from open markets have placed further pressure on states to find adequate resources.
The Chief Minister warned that a sudden and sharp decline in revenue due to GST revisions would only further weaken the financial condition of states such as Kerala. He insisted that necessary mechanisms be put in place to assess potential losses and provide timely compensation. He also called for a structured system that guarantees adequate financial support to states whenever such reforms are implemented. Through his communication, Vijayan urged the Prime Minister to step in without delay to prevent long-term damage to state finances.
Meanwhile, Finance Minister KN Balagopal highlighted that Kerala could face an additional shortfall of around Rs 8,000 to Rs 9,000 crore in tax revenue, on top of the state’s existing financial difficulties. He cautioned that this shortfall could have serious implications for several flagship welfare schemes, such as the LIFE housing project and the free insurance programme, which currently provides coverage to more than 42 lakh families in the state. According to him, without adequate financial support from the Centre, these social initiatives that provide direct relief to the people could face setbacks, undermining Kerala’s welfare-oriented model of governance.
