Karnataka Chief Minister Siddaramaiah on Friday presented his third consecutive budget with an outlay of Rs $4.48 lakh crore for 2026-27. Karnataka’s fiscal deficit and debt-to-GDP ratio in 2026-27 are expected to be 2.95% and 24.94%, respectively. For the fiscal year 2025-26, the fiscal deficit was recorded at 2.9% of GDP while the debt-to-GDP ratio stood at 24.91%.
“With these constraints (central tax mandates) on revenue availability, the state has carefully prioritized its spending to balance growth, well-being and fiscal discipline,” Siddaramaiah, who also holds the finance portfolio, told the Assembly while presenting his record 17th Budget.
The state’s 2026-27 budget expenditures are 13.3% higher than the state budget $3.95 lakh crore in the revised estimate figures for 2025-26. Renewable energy spending for 2025-2026 is 2.85% lower than the 2025-2026 BE figures.
For the period 2026-27, revenue receipts are expected to be $3,15,050 crore while the revenue expenditure is estimated at $3,38,007 crore, resulting in a revenue shortfall of 0.69% from the General Secretariat for Development Planning. The government also plans to hire 56,432 employees. The move is expected to increase revenue expenses in the coming years, adding to the burden that new wage commissions may bring next year.
State tax revenues are expected to rise from $1,93,100 crore in the revised estimate for 2025-26 to $2,20,000 crore in 2026-27, an increase of approximately 14%.
Capital expenditures are set at $74,682 crore, compared to $71,336 crore in previous budget estimates. Capital expenditures for 2026-2027 include: $Rs 40,000 crore for the proposed tunnel road project in Bengaluru.
It is expected that revenues from the Union government will increase from $62,933 crore in 2025-26 to $79,050 crore in 2026-27. This hike comes in the wake of the 16th Finance Commission’s recommendation to increase Karnataka’s share in the divisible tax pool to 4.131%, compared to 3.647% recommended by the 15th Finance Commission. The increase represents “partial compensation for the injustice done to the state,” Siddaramaiah said, adding that Karnataka expects to restore its share to 4.71%, as recommended by the 14th Finance Commission. He also accused the Union government of not adhering to the federal system of government and said the state had been treated unfairly. He said: “Our state is at the forefront in all sectors of the country’s development, and it is one of the main states that contributes the highest tax revenues.”
The higher tax shifting is expected to partially offset losses resulting from the rationalization of the GST rate implemented in September 2025. The changes caused a revenue shortfall of approx. $10,000 crore in 2025-26 and is expected to result in a deficit of around $15,000 crore in 2026-27.
Karnataka, along with seven other states, has asked the GST Council to set up a revenue protection mechanism to compensate states for losses arising from GST rate changes.
Despite the slowdown in GST growth, Karnataka’s economy expanded by 8.1% in 2025-26, higher than the national growth rate of 7.4%. In the previous year, the state recorded growth of 7.4% compared to the national average of 6.4%.
During 2025-26, agriculture grew by 9.1%, industry by 6.7%, and services by 8.1%. Growth in the services sector slowed from the 8.9% recorded in 2024-25. “The continued focus on capital investment by the government, coupled with the recovery in private sector investment, has provided a significant impetus to overall economic growth,” Siddaramaiah said.
FDI in Karnataka rose 2.6 times during the first half of 2025-26 to reach $9.4 billion, while investments in Maharashtra, Gujarat and Delhi declined, the budget said.
The government continued to fund the five guarantee and spending plans $1,21,598 crore so far. around $Rs 52,000 crore has been allocated for these programmes. Among the plans, she estimates the cost of her puppy Lakshmi $Rs 28,608 crore Gruha Jyothi $10,578 Crores, Yuva Nidhi $913 Crore and Anna Bhagya $6,200 crores. She estimates the cost of the Shakthi scheme, which provides women with free bus travel $5300 Crores.
