Foreign aid and financial woes Premium

The stand-off between the Kerala government and the Centre continues

When reports last week stated that the Chief Minister’s Relief Fund of Maharashtra had been allowed to receive foreign contributions under the Foreign Contribution (Regulation) Act (FCRA), the CPI(M)-led Left government in Kerala was quick to depict this as yet another act of discrimination against the southern State by the Centre. It recalled that the Centre had declined the Kerala government’s plea for accepting foreign aid in the days following the 2018 floods — a catastrophe that left large-scale destruction in its wake.

Kerala Finance Minister K.N. Balagopal said that while his State welcomed the approval for Maharashtra, it believed that it was unbecoming of the Central government to indulge in “political bias” in moments of great crisis. He stressed that it is important that the Centre treats every State equally. He added that it was unfortunate that politics, and not the scale of disasters, had become the yardstick in such matters. This was an apparent reference to the fact that the BJP-led Mahayuti coalition governs Maharashtra.

In the aftermath of the floods, the Centre had sparked a controversy by declining permission for Kerala to accept foreign aid, including a reported ₹700 crore offer from the UAE.

Kerala’s discomfiture with the foreign aid nod to Maharashtra is the latest episode in a protracted stand-off between the State and Centre. Kerala believes that it is being discriminated against, and denied its fair share of financial resources by the Centre. It has repeatedly complained about drastic cuts in financial allocations to it, and the “unfair limits” placed on its fiscal space. The Kerala government had taken the battle over restrictions on its borrowing capacity to the Supreme Court.

On the political front, the CPI(M)-led Left Democratic Front (LDF) has consistently accused the Centre of attempting to “financially choke” Kerala. It has blamed the Centre’s skewed policies for the State’s financial woes. The State government believes that recent Union Budgets have also caused disappointment to the State, as they have ignored pressing demands on the financial front. For instance, Kerala’s plea for a ₹24,000 crore economic package to prop up its finances were not mentioned in the 2024-25 and 2025-26 Union Budgets. More recently, the government slammed the Union Finance Ministry for cutting a little over ₹3,300 crore from its borrowing limit for the 2025-26 fiscal under the pretext of the Guarantee Redemption Fund.

The foreign aid nod to Maharashtra also presented the LDF government an opportunity to reiterate its dismay over the Centre’s approach to the deadly July 30, 2024, landslides in Wayanad district. In the aftermath of the tragedy, the Kerala government had announced plans for a structured rehabilitation programme, which included the building of townships with amenities for survivors. Mr. Balagopal said that the people of Kerala had, on two instances, expected Prime Minister Narendra Modi to announce special aid to Wayanad: first, when he visited that district in August last year; and second, when he visited Thiruvananthapuram to inaugurate the seaport at Vizhinjam. On both occasions, their hopes were dashed, he said.

Time and again, Kerala has accused the BJP government of paying scant regard to cooperative federalism — the driving spirit of Centre-State relations. It is evident that the trust deficit between the two entities on financial matters persists, notwithstanding the much-discussed breakfast meeting that Chief Minister Pinarayi Vijayan hosted for Union Finance Minister Nirmala Sitharaman at New Delhi in March. It remains to be seen how Kerala’s financial grievances concerning Union government policies will be addressed, as the southern State inches closer to a frenetic election season. The by-election in the Nilambur Assembly constituency in Malappuram district is scheduled to take place on June 19; elections to the rural and urban local bodies are scheduled to take place towards the end of 2025; and the Legislative Assembly polls are set to take place in the first half of 2026.