State budget: Tackling fiscal pressure a challenging task

As Karnataka gears up for its 2026-27 Budget, Chief Minister Siddaramaiah faces the challenging task of addressing the State’s widening fiscal pressures.

The State is grappling with a projected revenue deficit of ₹19,262 crore in the current 2025-26 fiscal year, a figure that could rise further due to recent GST rate rationalisation and other factors.

The fiscal deficit for 2025-26 stands estimated at ₹90,428 crore, equivalent to 2.95% of the Gross State Domestic Product (GSDP), staying just within the 3% limit prescribed under the Karnataka Fiscal Responsibility Act. To bridge the gap between revenue inflows and outflows, the government must explore measures to curb spending in non-essential areas while boosting revenue through enhanced tax collection, new cesses, or other levies.

The upcoming Union Budget on February 1, 2026, is expected to offer some clarity on central transfers and grants to the State, which could influence Karnataka’s fiscal planning.

In the 2025-26 Budget, revenue expenditure was pegged at around ₹3.11 lakh crore, against revenue receipts of approximately ₹2.92 lakh crore, within an overall Budget outlay of ₹4.09 lakh crore. However, ongoing challenges, including GST rate restructuring, have led to an anticipated additional revenue shortfall of about ₹9,000 crore this year, compounded by roughly ₹9,500 crore lost from the non-sharing of certain cesses by the Centre.

More borrowing

Credit rating agency ICRA has highlighted the State’s aggressive borrowing strategy, noting that Karnataka plans to raise a record ₹93,000 crore from the open market in the final quarter of 2025-26 — the highest quarterly borrowing ever by the State.

This amount is nearly double what the State raised in the same quarter of the previous two fiscal years and exceeds the full-year borrowings in those periods. So far, only ₹12,000 crore has been borrowed through December.

Overall borrowings for 2025-26 are budgeted at ₹1,16,000 crore, representing about 28% of the total budget size.

Leader of the Opposition R. Ashok has criticised the Congress-led government, dubbing Siddaramaiah the “Biggest Borrowing CM” amid concerns over rising debt levels.

‘Deliberate move’

According to the Chief Minister’s economic adviser and Congress MLA Basavaraj Rayareddy, the decision to front-load borrowings toward the end of the fiscal year is a deliberate move to minimise the interest burden on the State exchequer.

With welfare commitments, guarantee schemes, and other expenditures continuing to exert pressure, the upcoming Budget preparations would require careful balancing to maintain fiscal discipline while sustaining growth and development priorities.