Kerala Finance Minister K. N. Balagopal has issued a stark warning that the ongoing tariff war, notably led by the United States, threatens to inflict far worse damage on Kerala’s economy than the disruptions caused by the Covid‑19 pandemic. Speaking at a seminar on post‑Covid development challenges in Thiruvananthapuram, Balagopal noted that while India has lowered import duties on goods like luxury vehicles, the US is simultaneously imposing high duties—up to 25 percent—on Indian exports, including spices, tea, marine products, and pharmaceuticals. He warned that this asymmetric trade tension poses risks to both state revenue and export growth.
Kerala’s small and medium enterprises (SMEs), especially in the handloom, coir, and agro-processing sectors, stand to bear the brunt of trade disruptions. These industries, already strained by post-Covid demand fluctuations, rely heavily on export orders to sustain employment and production. A hike in tariffs can lead to order cancellations, cash flow crises, and potential layoffs. Balagopal warned that SMEs, lacking large-scale capital buffers, might face irreversible closures if external markets become inaccessible. He stressed the urgency for targeted financial relief packages, export credit guarantees, and working capital interventions to shield SMEs from cascading tariff-induced shocks.
The tariff war also threatens to trigger price inflation domestically. Balagopal noted that if export volumes fall, producers may shift focus to local markets, flooding them with surplus stock. While this might temporarily reduce prices, sustained disruptions could lead to production cutbacks, supply chain contractions, and eventual price hikes due to input shortages. For Kerala’s economy, which is already grappling with inflationary pressures from fuel, transportation, and essential commodities, the added volatility from export-linked sectors could destabilise market dynamics and aggravate consumer burden.
Fishing communities along Kerala’s coastline, deeply reliant on marine product exports, could witness immediate economic setbacks. Balagopal highlighted that retaliatory tariffs on seafood products would slash profitability and diminish overseas orders, forcing fishermen and processing units into financial distress. The fisheries sector, which had shown signs of revival post-Covid, may see a return of livelihood uncertainty. The minister stressed the importance of forging new bilateral trade agreements with alternative markets in Asia and Europe to offset potential losses from US and Western tariffs on Kerala’s marine exports.
Impact on Key Kerala Export Sectors
Balagopal specifically cautioned that Kerala’s export‑oriented sectors—marine products, spices, rubber, and tea—are especially vulnerable. A 25 percent US tariff on Indian goods could severely impact demand, shrink margins, and disrupt livelihoods in fishing communities and plantation areas. He insisted that a trade war hitting those sectors would stifle local economies that depend heavily on export earnings. With global inflationary pressures and a fragile recovery from Covid, added external shocks from international tariffs could tip the balance toward recession, especially in export‑dependent coastal and agrarian regions of Kerala.
Trade Imbalance vs Fiscal Caution
The minister highlighted the import‑export imbalance exacerbated by tariff policies. While India has reduced tariffs to stimulate imports—lowering duties on vehicles like Jaguars and Land Rover—the US continues to uphold high duties on Indian goods. This lopsided environment, Balagopal argued, damages India’s competitiveness. He also criticised pressure from foreign multinationals to reduce domestic GST rates. Meanwhile, Kerala has shown fiscal discipline by raising its own revenues post‑Covid, though its restricted borrowing and central constraints limit spending capacity to support vulnerable sectors amid tariff turbulence.
Revenue Gains vs Growing Debt Constraints
Balagopal cited fiscal data to highlight Kerala’s improving self-revenue performance: from tax and non‑tax collections rising from ₹54,000 crore in 2021 to ₹92,000 crore in 2024–25. As a percentage of GSDP, the state’s own revenue rose from 56 percent to 74.9%. Despite this, he noted that Kerala’s debt burden remains largely self-funded, because central borrowing limits have been sharply cut. The state’s constrained fiscal space leaves limited room for countercyclical spending, meaning trade shocks could force painful cutbacks or austerity measures during economic stress.
Comparisons with Covid Shock
Balagopal argued the economic impact of the tariff war could dwarf the adverse effects seen during the Covid pandemic. Kerala’s economy suffered significantly from natural disasters and the 2018 floods, along with the pandemic, leading to GDP contractions and revenue shortfalls. But the state’s response through infrastructure investment and budget consolidation has partially restored resilience. In contrast, new trade barriers could erode export markets and stall reconstruction momentum. The minister warned that such external shocks would disrupt export earnings without clear avenues for mitigation under current fiscal restraints.
The looming tariff war also threatens Kerala’s burgeoning IT and knowledge services sector indirectly. Balagopal pointed out that trade tensions disrupt global supply chains and investor confidence, leading to capital flight and reduced outsourcing opportunities. For Kerala’s tech parks and IT hubs that had shown steady post-pandemic recovery, a global economic slowdown could affect job creation and export-linked service contracts. The state government is looking at diversifying IT service offerings, boosting start-up incubation, and enhancing global partnerships to buffer against adverse external shocks that could shrink demand from Western clients due to trade policy uncertainties.
Educational institutions in Kerala, especially those offering professional and technical courses, could also face setbacks as the tariff war influences the global job market. Balagopal expressed concerns that reduced demand for skilled labour in export-oriented industries may discourage enrolments in vocational training programs, engineering, and marine sciences. This could trigger a chain reaction where skill development initiatives lose relevance, and employment prospects narrow. The state is contemplating curriculum adjustments and industry-academia partnerships to align training programs with emerging sectors less vulnerable to trade disruptions.
Balagopal underscored that Kerala’s cooperative sector, particularly in agriculture and fisheries, will need special policy attention. Co-operatives play a crucial role in aggregating produce for exports. However, tariffs will force many to renegotiate contracts, delay payments to members, and manage operational deficits. The minister suggested enhancing credit facilities and modernising cooperative infrastructure to withstand external shocks. He also proposed special support packages for cooperatives to explore e-commerce platforms and localised value addition, thus reducing their over-reliance on vulnerable international export chains.
Environmental concerns linked to economic disruptions were also flagged. Balagopal warned that if export sectors contract, there is a risk of unsustainable exploitation of local resources as producers scramble to compensate losses by overharvesting or intensifying land use. The fisheries and spice sectors are particularly susceptible to such ecological pressures. The minister stressed the need for a balanced policy approach that protects livelihoods while ensuring resource conservation. He advocated for reinforcing Kerala’s environmental safeguards even as the state navigates trade-induced economic challenges.
In conclusion, Balagopal reiterated that Kerala’s vulnerability to global trade shifts demands urgent and strategic interventions. The minister called upon the Union government to adopt a more balanced and protective trade policy that shields states like Kerala from asymmetrical tariff impacts. He insisted that Kerala’s resilience, honed through pandemic recovery efforts, must now be fortified with proactive trade diplomacy, infrastructural investments, and expanded social safety nets. Without timely and targeted measures, the economic scars of a tariff war could run deeper and last longer than the Covid-19 crisis.
Fiscal Federalism and Central Constraints
Balagopal emphasised that Kerala’s challenges are amplified by fiscal centralisation. He has previously accused the Union government of reducing Kerala’s share in the divisible tax pool from around 3.6 percent to under 2 percent, resulting in losses exceeding ₹50,000 crore in transfers. The sudden cessation of GST compensation grants and limits on borrowing have further squeezed finances. With rising expenditures and falling central support, Kerala has had to rely on increased own revenue—yet continues to struggle filling the gap between needs and legal financial ceiling imposed by central policy decisions.
Broader Geopolitical and Trade Concerns
The minister linked Kerala’s export vulnerabilities to shifting global trade policies, including Trump-era reciprocal tariffs and campaigns against India’s protectionist trade framework. These have prompted pressure from developed economies to liberalise India’s agricultural and dairy sectors. Simultaneously, India faces criticism for its reliance on high tariffs—currently averaging around 12 percent—higher than global norms. Balagopal warned that these pressures, paired with retaliatory duties from export markets, could undermine India’s competitiveness and hurt states like Kerala that depend on labor‑intensive exports.
Call for Strategic Policy Response
In response to mounting threats, Balagopal called for a stronger strategic posture at both state and central levels. He urged active trade diplomacy to secure export access and fair terms for Kerala’s products. The state government must explore export diversification, production incentives, and resilience plans for vulnerable industries. He also proposed revisiting tariff policies to balance domestic protection with export competitiveness. Internally, the government plans to channel more resources into infrastructure, remind investors of projects like Vizhinjam port, and reinforce R&D facilities to support long‑term growth, especially in post‑Covid recovery phases.
In the plantation sector, particularly rubber and spices, farmers face similar vulnerabilities. High production costs, coupled with shrinking export demand due to tariffs, could erode already thin profit margins. Balagopal underscored the risk of farmer indebtedness and crop abandonment if the government fails to intervene. Initiatives such as minimum support price guarantees, value-added product incentives, and domestic market development schemes are being explored. The minister called for central assistance in creating buffer stock mechanisms and export subsidies to protect Kerala’s plantation economy from tariff-induced shocks.
Balagopal also stressed that Kerala must reconfigure its trade logistics to mitigate dependency on vulnerable corridors. Infrastructure projects like the Vizhinjam International Seaport are crucial to enhancing Kerala’s export efficiency and reducing transaction costs. Additionally, improving cold chain logistics, modernising customs clearance, and fostering direct shipping links to non-US markets could provide strategic relief. The minister urged expedited completion of export-oriented infrastructure projects, including inland container depots and logistics parks, to strengthen Kerala’s position in global trade routes amidst shifting geopolitical landscapes.
As Kerala braces for the potential fallout, Balagopal emphasised the importance of strengthening social safety nets. Should tariff wars trigger job losses or income disruptions, Kerala’s welfare programs—like the pension schemes, Kudumbashree’s self-help initiatives, and unemployment benefits—must be scaled up to cushion affected families. The minister insisted that proactive planning, including contingency funds and targeted relief measures, is essential to prevent the socio-economic vulnerabilities witnessed during the pandemic from resurfacing. Without a robust safety net, he warned, the cumulative impact of trade disruptions could trigger a deeper humanitarian crisis.
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