Local bodies face fund crisis as Rs 5,651 crore remains unreleased

THIRUVANANTHAPURAM: Local self-government institutions across Kerala are facing a severe financial crisis as they have not received funds from the state government, leading to a slowdown in development activities. The third instalment of Rs 2,651 crore for the previous financial year was due before March 31, while the first instalment of Rs 3,000 crore for the current financial year was to be released before June 30. As a result, local bodies are yet to receive a total of Rs 5,651 crore, forcing several development projects to come to a standstill.

The fund shortage has also delayed payments to contractors for completed works. More than 1,200 local self-government institutions across the state are affected. The failure to release the pending third instalment from the previous financial year as a spillover allocation, along with reduced funding for the current year, has also affected key sectors, including healthcare.

Many local bodies have even struggled to find funds for projects announced in their annual budgets. On Monday, the state government extended the deadline for submitting annual plans for the 2026-27 financial year and allowed projects from the previous year to be carried forward as spillover works. However, local bodies have complained that the order lacks clarity. They also said that guidelines for using grants recommended by the 16th Finance Commission for new projects have not yet been issued. There is also uncertainty over whether the unspent balance of the 15th Finance Commission grants can be used for new projects.

Even if the pending funds are released, a major share of the allocation for the current financial year will have to be used to clear payments for works completed in the previous year. Under the existing funding pattern, the state government is required to bear 40 percent of the cost of projects undertaken by local self-government institutions.

Welfare schemes affected

The fund shortage has disrupted several welfare programmes, including:

1. Financial assistance for individuals and grants to educational and healthcare institutions managed by local bodies.
2. Benefits for students of Buds Schools, welfare schemes for persons with disabilities, assistance for farmers, and operational expenses of government-run farms.

"The day-to-day functioning of local self-government institutions has been affected because the previous government did not release the third instalment of Rs 2,150 crore. The grant for rural local bodies has also been reduced under the recommendations of the 16th Finance Commission. We will take up the matter with the Centre and try to find a solution."

- V D Satheesan

Chief Minister