Kerala, renowned for its high literacy and life expectancy, is now grappling with mounting fiscal pressures that threaten its pro-people policies. The state's economy recorded a robust 6.5% growth in 2023-24, but high committed expenditures and reduced central shares pose significant hurdles. Remittances continue to bolster growth, yet unemployment and sectoral imbalances persist.
In the 19th century, Kerala's populace subsisted on frugal diets due to scarce and low-quality rice, as noted by historian P. Bhaskaranunni in his work on 19th-century Kerala. Today, despite achieving enviable literacy rates, low infant mortality, and high life expectancy, the state remains dependent on imports for its staple rice, with domestic production falling prey to erratic monsoons.
When presenting modern Kerala's first budget in 1957, Finance Minister C. Achutha Menon observed that the greatest concern was the 'food problem,' alongside unemployment driven by population density, scarce arable land, and dearth of industries—a prophecy that resonates in today's Kerala of 3.4 crore people.
The Economic Review 2024 states that Kerala ranks among the top 10 Indian states in per capita income and GSDP. The real GSDP stood at ₹6,35,13,653 lakh in 2023-24, registering 6.5% growth compared to 4.2% in 2022-23. Per capita GSDP rose 5.5% to ₹1,76,072, exceeding the national average of ₹1,24,600.
Foreign remittances have been pivotal, surging from ₹85,092 crore in 2018 to ₹2,16,893 crore in 2023, according to the Kerala Migration Survey 2023. This inflow, driven by migration to Gulf countries, has fueled economic expansion post-1980s.
Yet challenges persist: unemployment stands at 7.2% for those aged 15 and above, double the national 3.2%, per the Periodic Labour Force Survey 2023-24. Agriculture growth is sluggish; wetland paddy area declined from 7.79 lakh hectares in 1960-61 to 1.79 lakh hectares in 2023-24, though productivity at 2,790 kg/hectare tops the national 2,424 kg/hectare.
Fiscal strains are acute, with salaries and pensions accounting for 45% of revenue expenditure in 2022-23 and 2023-24. Kerala's share in the divisible tax pool fell from 3.88% under the 10th Finance Commission to 1.92% under the 15th. The Kerala Infrastructure Investment Fund Board (KIIFB) has approved 1,180 projects worth ₹89,941 crore, disbursing ₹36,160 crore as of July 31, 2025, to spur infrastructure.
In September 2025, Finance Minister K.N. Balagopal submitted a supplementary memorandum to the 16th Finance Commission, highlighting impacts from U.S. tariffs under the Trump administration and proposed GST restructuring, seeking extra borrowing limits. Meanwhile, retail inflation reached 9.04% in August 2025, the highest among major states, against the national 2.07%.
