The Karnataka government will have a lot of balancing act to do between ballooning committed expenditure and reduction in revenue receipts, even as it pins hopes on increasing the State’s own tax revenue and increase borrowing to push capital expenditure.
“The capital expenditure growth this year will be slow because of the pressure on the revenue receipts. The State’s power to raise revenue is limited. Compared to 2025–26, when the capital expenditure grew by 35%, it will be slow in 2026–2027,” a government source said.
The capital expenditure for 2026–27 has been pegged at ₹74,782 crore, a modest rise from ₹71,336 crore in 2025–26. The capital expenditure in 2024–25 was ₹55,877 crore.
Retiring employees
According to sources, 2026–27 will witness a large pool of government employees retiring from service, adding to a burden of about ₹4,000 crore while the government’s recruitment drive to hire for 56,432 posts is set to add about ₹3,000 crore to ₹4,000 crore to the revenue expenditure.
Administrative expenses of running government offices across the State itself cost between ₹4,000 crore and ₹4,500 crore while expenditure on salary and pension come close to ₹1.33 lakh crore.
Debt servicing
The government, which borrowed close to ₹1.16 lakh crore in 2025–26, is set to borrow ₹1.32 lakh crore in 2026–27. The debt servicing is ₹35,316 crore, a growth of 33.4% over 2025–26 revised estimates. The interest payment for 2026–27 is estimated to be ₹53,332 crore. As the State’s overall debt is increasing, the share of debt servicing is projected to increase significantly in the coming year. The fiscal deficit is estimated to be ₹97,449 crore in 2026–27 as against ₹90,428 crore in 2025–26.
“When revenue space is limited, committed expenditure has to be taken care of first,” said government sources. The guarantee schemes will receive about ₹51,599 crore this year, and according to sources, it is difficult to cut many scheme-based committed expenditures. Chief Minister Siddaramaiah defended higher borrowing, and said that every government had raised loans, and that he too had raised loans in his last term. “The fiscal deficit and total liabilities are within the limits prescribed by the Karnataka Fiscal Responsibility Act.”
The rising committed expenditure comes at a time when the revenue to State has taken a hit by about ₹15,000 crore from GST rationalisation and cess making way for tax on sin and luxury goods, about ₹5,000 crore from Jal Jeevan Mission and about ₹3,000 crore from anticipated mining tax, the bill for which is pending with the President for assent.
Hopes for future
While the State is anticipating ₹2.20 lakh crore in State taxes, it is expecting ₹63,050 crore as its share of Central taxes and ₹16,000 crore in grants from the Centre. The non-tax revenue has been estimated to be ₹16,000 crore, down from ₹17,500 crore in 2025–26. Overall, the revenue receipts is estimated to be ₹3.15 lakh crore, up from ₹2.77 lakh crore in 2025–26.
On the other hand, the State government is hoping to raise more money from the mining sector if the President gives assent to the Karnataka (Mineral Rights and Mineral Bearing Land) Tax Bill, 2024.
The State government understands the potential of raising revenue in the mining sector, and once the bill is accepted, the sector has potential to bring in close to ₹18,000 crore this year through a one-time settlement, royalties, and taxes. It is also hoping that revenue from the Stamps and Registration Department will pick up this after the slow-down in 2025–26 owing to e-khata and other issues. “We are hoping to get about ₹5,000 crore through transactions that have been deferred or delayed.”
The Excise Department, which is likely to end up collecting close to ₹42,000 crore by the end of 2025–26, is expected to perform well, though officials acknowledged the rise in revenues was due to the increased cost of liquor and not the increase in consumption. The auction of over 500 excise licences, which is projected to fetch the government about ₹1,000 crore, is also among the avenues the government is considering. Currently, the matter is in court.
Revenue deficit to stay
The revenue deficit — mostly due to funding for guarantees — is likely to be around till 2029-2030 due to reduced revenue flow caused by GST rationalisation. According to Chief Minister Siddaramaiah, though they hoped to be revenue surplus by the end of 2026-2027, because of revenue flow, it will have to wait. While the revenue deficit was expected to be ₹19,262 crore, it is estimated to be around ₹22,957 crore in 2026-2027. In 2024-2025, revenue deficit was around ₹27,354 crore.
Published – March 06, 2026 10:07 pm IST
