Debt crisis, anti-incumbency loom as Kerala gears up for Assembly polls in 2026

From mounting public debt and inflation to climate disasters, agrarian distress and youth migration, the stakes could hardly be higher.

A huge financial crisis awaits the new government after the state Assembly elections.

Kerala's public debt has escalated to around Rs 4.8 lakh crore by mid-2025, including off-budget borrowings, severely straining state finances.

Annual debt repayment obligations stand at nearly Rs 28,500 crore and are projected to continue till 2033–34.

Alarmingly, about 98 per cent of recent borrowings have gone into servicing old debt, leaving very little fiscal space for creating new capital assets or expanding development programmes.

The state has increasingly relied on agencies such as the Kerala Infrastructure Investment Fund Board (KIIFB) to finance infrastructure projects.

While this model helped bypass immediate fiscal constraints, it has led to cash-flow stress, delayed payments and periodic scaling back of allocations for large projects.

Welfare schemes, however, continue to be protected, albeit under visible financial strain.

The debt-to-GSDP ratio is expected to hover in the mid-30 per cent range in 2025–26, accompanied by a persistent revenue deficit.

With limited scope for higher central transfers, Kerala may be forced to depend on higher state taxes, user charges and continued borrowing, keeping the fiscal situation tight through 2026.

Against this backdrop, Kerala eagerly awaits the Assembly elections, likely to be held in May 2026.

The political contest is intensifying among the Communist Party of India (Marxist)-led Left Democratic Front (LDF), which is eyeing a record third term in a row, the Congress-led United Democratic Front (UDF), which is struggling for a comeback after the 2016 rout and the BJP-led National Democratic Alliance (NDA).

The recently concluded local body elections delivered a major boost to the UDF, which emerged ahead across panchayats, municipalities and most corporations, signalling strong anti-incumbency sentiment.

The LDF suffered major rout and is now seeking to regain ground by highlighting governance achievements and welfare initiatives.

The NDA, still a third force in the state, made headlines by winning the Thiruvananthapuram Corporation and hopes to expand its footprint, setting the stage for a keen three-cornered contest.

Adding to the political heat is the sensitive Sabarimala gold theft case.

The Special Investigation Team has arrested former Travancore Devaswom Board (TDB) member N. Vijayakumar, intensifying the probe.

Earlier, former TDB presidents and senior CPI(M) leaders A. Padmakumar and N. Vasu were also arrested, putting the ruling CPI-M-led LDF government on the defensive.

The Kerala High Court has denied bail to the key accused, criticised delays and laxity in the investigation, and ordered a wider, court-monitored probe.

While the Opposition accuses the CPI(M) and the LDF government of shielding party affiliates, the ruling party denies any protection and insists the law is being followed.

The case is widely seen as a major factor behind the LDF's poor local body poll performance and is expected to significantly impact its bid for a historic third consecutive term.

Kerala also continues to grapple with severe monsoon-related disasters.

The Southwest Monsoon routinely triggers floods and landslides, with 2018 marking a catastrophic year of widespread slope failures.

The flash floods and landslides at Chooralmala in Wayanad in July 2024 alone claimed more than 400 lives and destroyed hundreds of homes after incessant rainfall washed away two villages.

Nearly one-and-a-half years later, survivors are still awaiting proper rehabilitation, with relief measures stuck in a tug of war between the state and the Centre.

Climate change, quarrying and land-use changes have heightened risks, and projections for 2026 indicate continued extreme rainfall and persistent landslide threats, demanding stricter zoning and relocation policies.

The agriculture sector is under growing stress.

Falling rubber and spice prices, delayed paddy procurement and escalating man-wildlife conflict have pushed farmers into distress.

Despite the LDF's 2021 poll promise to raise rubber's minimum support price to Rs 250 per kg, it currently stands at about Rs 200 after a recent announcement, triggering protests over stagnant prices, imports and suspected cartelisation.

Paddy farmers face procurement delays and payment arrears, forcing distress sales.

Man-wildlife conflicts, especially involving elephants and wild boar, continue to devastate crops and livelihoods in high-range areas.

Inflation has added to household pressure.

In 2025, Kerala recorded one of the highest inflation rates in India, peaking at around 8.6 per cent even as national inflation dipped below one per cent at one point.

Structural factors such as high housing and service costs suggest Kerala may remain a high-inflation state through 2026.

Despite policy efforts, Kerala is yet to emerge as a major investment destination.

While investment proposals worth Rs 1.53 lakh crore were announced at the Invest Kerala Global Summit 2025, realised investments remain modest.

High land costs, stringent environmental norms, high wages and labour issues continue to deter large-scale industrial investment.

The youth migration and unemployment pose long-term challenges. In 2025, around 2.5 lakh students and young professionals left the state annually, deepening brain drain.

Unemployment remains high at 7–8 per cent, with youth unemployment nearing 30 per cent. While skilling initiatives may help, job creation remains the central challenge for Kerala's next government.