Karnataka is urging the Union Government to address its shrinking fiscal space in the upcoming Union Budget 2026-27. Karnataka Revenue Minister Krishna Byre Gowda presented the state's concerns and demands to Union Finance Minister Nirmala Sitharaman at the pre-budget meeting in Delhi on Saturday.
The state government has called for revenue protection post-GST rationalization, a share in the excise duty and cess on pan masala and tobacco products, and the release of pending central dues under flagship schemes like the Jal Jeevan Mission. They are also seeking strengthened funding for rural employment, agriculture, and social protection.
One of Karnataka's primary concerns revolves around the revenue loss suffered due to GST rate rationalization. Gowda pointed out that Karnataka's GST growth has fallen from 12% to 5% post-GST rationalization, resulting in a shortfall of ₹5,000 crore this year and an anticipated ₹9,000 crore annually. While the central government has been able to offset its losses by levying a cess on pan masala and excise duty on tobacco, states lack similar flexibility. Gowda has requested a robust revenue protection mechanism for states and full compensation for revenue loss, akin to the GST Compensation Cess.
Karnataka is also requesting a 50% share in the excise duty on tobacco and the cess on pan masala to restore fiscal equity and cooperative federalism. Gowda argued that states bear the public health, enforcement, and regulatory costs associated with these products, yet the cess proceeds remain outside the divisible pool.
Furthermore, Karnataka has requested the release of the pending central share of ₹11,786 crore under the Jal Jeevan Mission to ensure the scheme's speedy execution. The state government has already released ₹13,004 crore in advance, exceeding its share, to avoid disruptions in the project. Reimbursement of these advances is crucial to ease the fiscal strain on the state's finances and ensure the timely completion of the works.
Another key issue raised by Gowda was the shift from the demand-driven Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to the allocation-based Viksit Bharat Guarantee for Rozgar and Ajivika Mission (Gramin) (VB-G RAM G) scheme. He stated that this change has reduced effective employment days and that sustaining 13 crore person-days of work would require approximately ₹2,000 crore, which is fiscally unsustainable. Gowda has requested a reconsideration of the scheme's design, restoration of demand-driven employment, and adequate uncapped central funding.
In the agricultural sector, Karnataka has proposed a Price Deficiency Payment Scheme (PDPS) for eight crops—maize, soybean, mango, chilli, onion, tomato, turmeric, and ginger—and requested an additional allocation of ₹796 crore under PM-AASHA for the timely rollout of the scheme in 2026-27. Gowda also urged that the central contribution to Anganwadi workers, ASHAs, and cooks/helpers be revised to ₹8,000 from ₹5,000 per month.
Karnataka is facing shrinking fiscal space due to GST changes, rising social commitments, climate shocks, and rapid urbanization. Gowda stressed that while Karnataka is a major contributor to national growth, its responsibilities have expanded faster than its revenues, necessitating corrective fiscal measures in the Budget 2026-27. He reiterated Karnataka's commitment to fiscal discipline and national growth and appealed for the Union Budget 2026-27 to restore fiscal balance, predictability, and trust between the Centre and the states.
