Chief minister Siddaramaiah will present Karnataka’s Budget for 2026–27 in the Legislative Assembly today, as the state grapples with revenue pressures, rising welfare commitments and disagreements over debt estimates.
The CM will present his record 17th budget at 10.15 am. Officials indicate the overall outlay could reach about ₹4.20 lakh crore.
Like the previous Budget, the 2026–27 plan is expected to project a revenue deficit. The state is unlikely to meet the revenue targets set for 2025–26 due to several factors, including the impact of GST rate changes.
Economic adviser to the chief minister, Basavaraj Rayareddi, said Karnataka is likely to close the current financial year with a revenue shortfall of around ₹18,000 crore, largely due to GST rate rationalisation introduced in September last year. “States should have been compensated for this,” he said.
The administration has also taken steps to increase revenue from mining. Earlier this week, it created a new post of secretary (mines), assigning additional charge to commercial taxes commissioner Vipul Bansal. Officials expect the mining sector to bring in an additional ₹3,000 crore to ₹4,000 crore in the next fiscal.
At the same time, the government faces growing expenditure commitments. For 2025–26, ₹51,034 crore has been earmarked for the Congress government’s flagship guarantee schemes, though there have been suggestions in some quarters to scale back the allocation.
The administration must also account for its plan to fill 56,432 vacant posts, a move expected to significantly increase salary expenditure. The state’s salary bill has already risen from ₹61,498 crore in 2023–24 to an estimated ₹85,860 crore in the current fiscal.
Overall, the government is projected to allocate about ₹3.45 lakh crore towards routine expenditure in the coming financial year. Salaries and pensions alone are expected to require an outlay of around ₹1.36 lakh crore.
In the current fiscal year ending in March, Karnataka’s Budget size stood at ₹4.09 lakh crore. About 82% of this amount went towards revenue expenditure and debt repayment, leaving ₹71,336 crore for capital expenditure.
Revenue expenditure includes recurring commitments such as salaries, pensions, subsidies and interest payments. The Mid-Year Review of State Finances released in December noted that increased spending on welfare initiatives had contributed to rising committed expenditure. “The increase in committed expenditure, including the state’s spending on guarantees and various welfare schemes, has increased the revenue expenditure,” the Mid-Year Review said.
Revenue deficit trends have also shaped the state’s fiscal situation. When the Congress government presented its first Budget of the current term in 2023–24, with allocations for the guarantee schemes, the estimated revenue deficit stood at ₹12,523 crore, which later declined to about ₹8,000 crore in revised estimates.
For 2024–25, the revenue deficit was projected at ₹27,354 crore but eventually dropped to slightly below ₹20,000 crore. In 2025–26, the deficit is estimated at about ₹19,262 crore and could widen due to GST-related revenue losses and slower collections in the Stamps and Registration Department.
Meanwhile, the state government has challenged the estimate by the Reserve Bank of India that Karnataka’s outstanding liabilities will reach ₹8.14 lakh crore by the end of the current fiscal. “…the figure of ₹8.14 lakh crore reported externally overstates the state’s liabilities, and the correct figure of state total liability is likely to be 7,64,655 crore at the end of 2025-26,” the finance department said in a statement.
According to the RBI’s estimate, Karnataka’s liabilities would amount to 26.5% of Gross State Domestic Product, exceeding the permissible limit of 25%. The state government, however, maintained that its liabilities stood at 24.91% of GSDP.
“The difference between the figure cited in the RBI report and the state government’s liability estimate arises due to the inclusion of certain items that do not constitute the State’s actual debt obligations,” the finance department said.
Officials said the RBI report included ₹20,412 crore raised as GST compensation loans under the state’s liabilities. “However, this borrowing is backed by the Union government and is serviced through the cess collected by the Centre,” it said.
The finance department also said ₹23,810 crore had been “double counted” because funds collected through certain state cesses were recorded both as public account balances and as investments in earmarked funds.
“The state receives own tax receipts through the levy of certain cesses. These cesses are deposited in a fund and later used for capital investments in major infrastructure projects,” it said.
“These funds are double counted as a regular public account fund balance as well in a separate category called ‘investment in earmarked funds’, leading to double counting,” it added.
Another ₹16,300 crore invested by the state in the Consolidated Sinking Fund and Guarantee Redemption Fund of the RBI had also been treated as a liability. “These are investments made by the State as per the recommendation of the RBI as a security for future repayment and hence cannot be considered as a liability,” the department argued.
“Due to the above three factors, an amount of about ₹60,500 crore has been incorrectly reflected as part of the state’s liabilities in the external report,” the department said, adding that it had asked the Accountant-General to reclassify the entries and that “a resolution is expected soon.”