After presenting his 17th state Budget on March 6, Karnataka’s longest-serving Chief Minister Siddaramaiah said he would “keep giving Budgets until the high command tells me”. It was a remark in response to the countdown in the media for the end of the 77-year-old CM’s tenure amid a challenge from his deputy D K Shivakumar.
The Budget was par for the course, given the Congress government’s policies, with Rs 51,286 crore from an expanded Rs 4.48 lakh crore expenditure plan being kept aside for implementing the five pro-poor guarantee schemes that brought the party to power in 2023.
“This Budget is a live document echoing the dreams and confidence of farmers, marginalised sections, workers, women, vulnerable groups, minorities, students, youth, and those engaged in trade and industry,” Siddaramaiah said in his speech, echoing words he has repeated through his second term.
“This year’s Budget has been made with a focus on social justice and the development of the entire state has been included in the budget,” the CM said, dwelling on the key aspect of “social justice” that has been the political forte of the Congress in Karnataka.
Allocations
Like in previous years of its current term, the Siddaramaiah government allotted Rs 28,608 crore for the monthly subsidy of Rs 2,000 for one woman per BPL home under the Gruha Lakshmi scheme (1.24 crore beneficiaries); Rs 5,400 crore for the free bus transport of all women under the Shakthi scheme (684 crore trips in 2025-26); Rs 10,578 crore for free power to all homes under the Gruha Jyothi scheme (1.74 crore consumers); Rs 6,200 crore for the Annabhagya free rice/food packet scheme for BPL families (4.54 crore beneficiaries); and Rs 600 crore for the educated, unemployed youth financial assistance program called Yuva Nidhi (3.08 lakh beneficiaries in 2025-26).
The 2026-27 budget involves a revenue deficit of Rs 22,957 crore, which is 0.69% of the state GSDP and marginally lower than the recent high of Rs 25,549 crore (0.81%) seen the year before. The state’s borrowings are estimated to reach an all-time high of Rs 1.32 lakh crore in the next fiscal compared to the Rs 1.16 lakh crore in the 2025-26 fiscal. The borrowings are within the fiscal discipline limits, with the total borrowings reaching Rs 8.24 lakh crore, which, at 24.94% of the state GSDP, is just short of the 25% fiscal discipline mark.
The government’s heightened borrowing in a status quo budget is seen as an effort to balance the large outgo of funds for the politically driven guarantee schemes alongside the imperative of providing funds for infrastructure and development, especially since it is under constant pressure for access to discretionary funds for civil contracts from its own 138 MLAs in the 224-member House.
The government has explained in the past that each Assembly constituency receives as much as Rs 233 crore through the guarantee schemes of the government alone, but this has not been satisfactory for the MLAs who have adhered to the party line amid the CM’s own battle with Shivakumar to remain in power.
Although the state has seen healthy growth in terms of its economy, primarily driven by FDI ($ 9.4 billion in the first half of 2025-26), there is some concern over not meeting revenue targets in the last year. “The state economy recorded a strong real GSDP growth of 8.1% at constant prices in 2025–26, surpassing the national growth rate of 7.4% for the same period,” Siddaramaiah said in his speech.
The agriculture sector, which contributes 10.77% to the GSDP, recorded a robust growth of 9.1%, “supported by improved monsoon conditions,” while the industrial sector, which contributes 19.36%, grew by 6.7 per cent, and the services sector, which has a 69.87% share in the GSDP, registered a growth of 8.1%.
Revenue shortfall
However, the government has witnessed a nearly Rs 15,000 crore shortfall in revenue generation (7% below the budget estimate) in the current fiscal across the state’s own tax domain of state GST/commercial tax, excise, property and vehicle registrations. Against a projected revenue of Rs 2.08 lakh crore for the current fiscal year, the state has generated only Rs 1.93 lakh crore of its own revenue as per revised estimates for 2025-26.
Commercial taxes, or state GST, that makes up the largest chunk of the state’s own revenues is down at Rs 1.1 lakh crore in terms of revised estimates compared to a Budget estimate of Rs 1.2 lakh crore for 2025-26. State excise is at Rs 41,000 crore against an estimated Rs 42,000 crore, and registration is at Rs 25,000 crore instead of Rs 28,000 crore.
Despite the muted tax collections through the state’s own resources, the government has projected a sizable improvement in tax collection in 2026-27 at Rs 2.2 lakh crore vis-à-vis the Rs 1.93 lakh crore of state revenues collected in the current fiscal, which is an estimated increase in revenue of 14% despite the 7% dip.
“Despite structural challenges arising from tax policy changes by the Union Government, the State’s own revenue collections have exhibited resilience, supported by effective resource mobilisation measures undertaken by the state government,” Siddaramaiah said.
Political pushback
The political war of words since the presentation of the Budget has centred around the increased debt burden on the state, including the brinkmanship of total liabilities at 24.94% of the state GSDP and the fiscal deficit of 2.95% (against a 3% outer margin).
“Over the past three years alone, the government has accrued Rs 4.39 lakh crore in debt. The situation has reached a point where even servicing the interest on this debt will become difficult,” said Leader of the Opposition R Ashoka of the BJP.
“The state’s debt has now reached Rs 8.24 lakh crore. This year, they are taking on new loans of Rs 1.32 lakh crore. Where is the money from such loans going? Capital expenditure is not being made and government assets are not being built. So what are you doing with all the loan money?” asked Union Minister H D Kumaraswamy, the leader of the Janata Dal (Secular).
Siddaramaiah defended himself by pointing to the Union government’s borrowings amid weakened GST collections. He also blamed the failure of the Central government to compensate for Rs 10,000 crore in GST losses after rate revisions last year for weakening the state’s own revenue system.
“Modi has taken out a loan of Rs 165 lakh crore since coming to power. This is 55.6% (of GDP) as per the Act (for fiscal responsibility). India’s fiscal deficit is 4.4%, while Karnataka’s fiscal deficit is 2.95%, which is within the limit of 3% of GDP prescribed by the Act,” Siddaramaiah said.
“The financial burden on the state has increased as the Central government has not given the grants that were due to it fairly,” he said. “Despite non-cooperation from the Union Government, we have maintained fiscal discipline while achieving economic growth. This reflects our responsible governance,” the Karnataka CM said in his budget speech.
Siddaramaiah has specifically referred to Rs 69,488 crore of works under the Jal Jeevan Mission Scheme, under which “only Rs 11,786 crore has been released” by the Centre, while the state has released Rs 27,098 crore from its share of Rs 38,600 crore.
“Though we have been striving for the development of our state beyond our capacity, the Union Government continues to treat our State unfairly by disregarding the constitutional principles of cooperative federalism,” the CM said.