Cat is out: Balagopal cut capital spending, kept money in Kerala's Treasury

'The place where cats breed' is an image originally found in Charlie Chaplin's classic 'The Great Dictator' and later used as a metaphor for absolute dysfunction. 

In the film, when Chaplin's barber character, the look-alike of the 'Great Dictator', returns home after the war and reopens his salon, a horde of cats rush out into the street. Rather than rely on the convenient shots of cobwebs and dust, Chaplin lets out a crowd of kittens to show that the barbershop has been abandoned for too long. 

It was this Chaplinesque imagery (place where cats breed) that V D Satheesan, while he was Opposition leader, had invoked to describe the condition of Kerala's finances under the LDF government. 

But has former finance minister K N Balagopal left the Kerala Treasury in such an empty and dismal state? Figures show that there are severe issues but the situation is not so critical as to make the Chaplinesque imagery apt.

For instance in 2025-26, the last fiscal for which the LDF government was in power, the revenue collection nearly matched the seemingly insurmountable target set. 

Balagopal had expected the total revenue receipts-- GST, registration, land revenue, sales tax, excise duties and even the state's share of Union taxes-- for the 2025-26 fiscal to be ₹1,52,351.67 crore.

As per the provisional figures put out by the Comptroller and Auditor General, Balagopal ended up collecting 1,38,986.80 crore , 91.23 per cent of the target. 

This meant a total revenue growth of 11.31 per cent, the highest in eight years. In the previous 2024-25 fiscal, there was virtually no growth, just 0.3 per cent. In the fiscal before that, 2023-24, revenue collections had in fact fallen by 6.21 per cent. 

Therefore, the last fiscal of the second Pinarayi government was the time when the Kerala economy bounced back in terms of revenue. So to mock the treasury as a place where cats had a good time was unkind. 

Moreover, if there was no money in the treasury, how could the revenue expenditure (money pumped in to keep the state running on a daily basis) have increased?

In 2025-26, the revenue expenditure grew by 5.79 per cent, though it was lesser than the 9.32 per cent growth achieved in 2024-25. 

It is also true that revenue expenditure during 2025-26 fell short of Balagopal's dream of a "two trillion" economy. He aimed for ₹1,90,376.01 crore but ended up spending only ₹1,64,958.82 crore, 14 per cent short of target. Still, revenue expenditure expanded.

And contrary to what V D Satheesan would want Kerala to believe, efficiency in tax collection has also been improving under the LDF government, especially in the last years. The cost of collecting ₹100 as tax has tapered to ₹15. During the UDF tenure and the first Pinarayi government, the cost of collection was ₹22 on an average for every ₹100 collected.

The problem, however, is in the quality of capital expenditure, which is the kind of funds used to create permanent assets that will both sustain and accelerate the state's growth. 

Higher the proportion of borrowed money utilised for capital creation, greater the prospects of growth. During 2024-25, 90 per cent of borrowed funds were utilised not for creating long-term assets but to pay back Kerala's debts; capital expenditure was 9.80 per cent, the lowest in a decade. 

In 2025-26, it got even worse. Provisional figures show it is close to 8 per cent. This indicates spending without growth.

Poor capital spending was particularly true for social (education, health and family welfare, water supply, and welfare of SC/ST) and economic (agriculture, rural development, irrigation, cooperation, energy, industries, transport) sectors.

In 2025-26, Balagopal could manage just over half of what he wanted to spend on capital formation in the social sector. The capital expenditure target for social services was ₹8175.85 crore. It was only ₹4752.72 crore he could spend; short by over 40 per cent. In 2024-25, Balagopal had done better. He achieved 70 per cent of the target.

For economic services, capital spending has fallen 30 per cent below target. 

Here is the paradox. By under-spending in crucial sectors, Balagopal can look efficient. Suppressed expenditure will inevitably lower fiscal deficit from even its budgeted figure, and lower the deficit higher the prestige for a finance minister.

But such a triumph is deceptive. It is like having an imposing hospital building without adequate doctors, beds, X-ray and MRI facilities.

In conclusion, there is enough money in the treasury to keep the cats out but the problem is, the economy is too weak to spend it productively.