Karnataka Chief Minister Siddaramaiah presented the State Budget for 2026-27 with a total outlay of ₹4,48,004 crore, a 13.3% increase compared to the Revised Estimates for 2025-26, pegged at ₹3,95,307 crore. This was despite concerns over a fall in Goods and Services Tax (GST) revenue due to rate rationalisation, which seems to have been countered by an increase in the State’s share of the tax devolution pool, as per recommendations of the 16th Finance Commission.
The budget adheres to norms of Karnataka Fiscal Responsibility Act, 2000, though very close to the upper limits.
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The fiscal deficit stands at ₹97,449 crore, or 2.95% of GSDP, as against the limit of 3%
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The total liabilities stand at ₹8,24,389 crore, or 24.94% of the GSDP, as against the limit of 25%
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Borrowing estimate is ₹1.32 lakh crore
Revenue deficit
Karnataka has been presenting revenue deficit budgets for consecutive years now. This year, the figure is pegged at ₹22,957 crore, up from ₹19,262 crore last year, as per budget estimates.
While the total revenue receipts is estimated to be ₹3,15,050 crore, revenue expenditure is pegged at ₹3,38,007 crore.
The State Government is undertaking one of the largest recruitment drives to fill 56,432 posts, which is expected to drive up revenue expenditure further in the coming years.
Compared to revised estimates of the State’s own tax revenue in 2025-26, which was pegged at ₹1,93,100 crore, the budget estimates for the same sees a hike of nearly 14%. For 2026-27, the State’s own tax revenue is estimated at ₹2,20,000 crore.
However, the capital expenditure has increased by a mere 4.6% from ₹71,336 crore, as per budget estimates of 2025-26, to ₹74,682 crore even as the budget size has increased by over 13%.
Increase in tax share from Centre
Receipts from Government of India have gone up from ₹62,933 crore in 2025-26 to ₹79,050 crore in 2026-27, an increase of over 25%. This mainly due to the 16th Finance Commission recommending the State’s share in the divisible tax pool at 4.131%, up from 3.647% recommended by the 15th FC.
Mr. Siddaramaiah described this increase as a ‘partial redressal of the injustice caused to the State’, stating that the State expects its share to be restored to 4.71%, as recommended by the 14th FC.
He said the 16th FC had considered Karnataka’s suggestion to reward fiscal performance and contribution to the national economy while computing the tax devolution formula. The FC has included GSDP contribution to national economy for weightage, which Mr. Siddaramaiah termed as a ‘directional shift’.
GST shortfall
The increase in the State’s share of the divisible tax pool seems to have cushioned the fall in GST revenue due to rate rationalisation carried out in September, 2025.
The rate rationalisation led to a shortage of ₹10,000 crore in 2025-26. This figure is expected to be around ₹15,000 crore in 2026-27.
While supporting rate rationalisation in principle, Karnataka, along with seven other States, petitioned the GST Council for a robust revenue protection programme. Mr. Siddaramaiah said the State will continue to press for adequate compensation from the Union Government for revenue loss to States on account of GST rationalisation.
Karnataka’s growth outpaces national growth
Despite a downward trend in GST collection, due to rate rationalisation, with the monthly growth rate falling from 10% to around 4%, the State’s economy registered a GSDP growth of 8.1% in 2025-26, surpassing the national growth rate of 7.4%.
Last year too, the State’s GSDP grew by 7.4%, outpacing the national growth rate of 6.4%.
While the agriculture sector grew by 9.1%, the industrial sector grew by 6.7%, and the services sector grew by 8.1% in 2025-26. Only the services sector registered a slower growth rate — 8.1% compared to 8.9% in 2024-25.
“The continued emphasis on capital investment by the government, together with a revival in private sector investment, has provided significant impetus to overall economic growth,” Mr. Siddaramaiah said in his budget speech.
Even as Foreign Direct Investment (FDI) in Maharashtra, Gujarat and Delhi declined, Karnataka saw a 2.6 times increase during the first half of 2025-26, with the amount of investment being $9.4 billion, according to the budget.
Published – March 06, 2026 11:56 am IST
