BENGALURU: Chief Minister Siddaramaiah, who presented his record 17th state budget on Friday, noted that Karnataka’s economy recorded a strong real GSDP growth of 8.1 per cent at constant prices in 2025–26, surpassing the national growth rate of 7.4 per cent for the same period. This performance was supported by broad-based sectoral growth and reflects the state’s diversified and stable growth pattern, he noted.
“The agriculture sector recorded a robust growth of 9.1 per cent, supported by improved monsoon conditions, while growth in the industrial sector strengthened to 6.7 per cent. The services sector has registered a growth of 8.1 per cent. During the first half of 2025–26,
FDI equity inflows to the State stood at USD 9.4 billion, accounting for 26.7 per cent of the nation’s total inflows. While several other major State economies such as Maharashtra, Gujarat, and Delhi recorded a decline in FDI inflows during this period compared to the previous year, Karnataka registered a significant increase of 2.6 times, underscoring its growing attractiveness as an investment destination”, he said.
“Further, with the implementation of the Industrial Policy 2025–30, a greater inflow of investment is anticipated in the coming years. Karnataka today is one of the most globally integrated state economies in India. Our leadership in Information Technology and IT-enabled services, biotechnology, aerospace and defence manufacturing, electronics and semiconductor design, start-up innovation, and advanced manufacturing has positioned us as a key contributor to India’s exports and foreign direct investment inflows”, he said.
#WATCH | Bengaluru: Karnataka CM Siddaramaiah presents the State Budget at the Vidhana Soudha.
(Source: Karnataka Assembly) pic.twitter.com/iPMV4OKAed
— ANI (@ANI) March 6, 2026
The CM noted that Karnataka continues to demonstrate strong fiscal performance and robust revenue mobilisation capacity. “Despite structural challenges arising from tax policy changes by the Union Government, the State’s own revenue collections have exhibited resilience, supported by effective resource mobilisation measures undertaken by the State Government. The State’s own revenues are estimated to grow by 8.3 per cent in the Revised Estimates for 2025–26 over 2024–25”, he said.
Despite fiscal pressures arising from GST rate rationalisation and reduced tax devolution, Karnataka has responsibly and resolutely adhered to fiscal discipline over the past three years. In the fourth year as well, in accordance with the provisions of the Karnataka Fiscal Responsibility Act, the State has contained the fiscal deficit within 3 per cent of GSDP and total liabilities within 25 per cent of GSDP, thereby reaffirming its commitment to fiscal prudence and long-term fiscal sustainability, CM Siddaramaiah noted.
Karnataka ranks second in the country in GST revenue collections, underscoring its strong economic fundamentals. The GST rate rationalisation done in September 2025, has reduced the GST collections. Prior to rationalisation, the State’s average monthly GST revenue collections in 2025–26 were registering a growth (net of refunds) of about 10 per cent. However, following the implementation of rate rationalisation, the average monthly growth has moderated sharply to around 4 per cent in 2025–26, he noted.
The proposed rate restructuring has resulted in a reduction in overall GST collections by approximately Rs.10,000 crore for the current financial year and Rs.15,000 crore for next year. “Going by the numbers of 2025-26 RE and 2026-27 BE of Govt. of India, we see that there is a revenue loss of Rs. 1.3 lakh crore in the current year and a staggering Rs.2 lakh crore in the next FY. This will also result in a sharp reduction in tax devolution to the States”, he said.
“While States face revenue compression, the Union Government continues to mobilise significant revenues from sin and luxury goods through the different forms of taxation, the proceeds of which accrue entirely to the Government of India. Karnataka, along with seven other States, submitted a joint memorandum to the GST Council to safeguard the fiscal interests of States in the context of GST rate rationalisation. While supporting rationalisation in principle, the States emphasised that such reforms must be accompanied by a robust and time-bound revenue protection framework. In view of these large revenue losses, we will continue to press for adequate compensation from the Union Government to States for revenue losses arising from GST rationalisation”, the CM said.
“Under the 15th Finance Commission, Karnataka’s share in the divisible pool of central taxes declined sharply to 3.647 per cent from 4.713 per cent recommended by the 14th Finance Commission. This reduction of nearly 23 per cent has resulted in an estimated cumulative loss of around Rs.65,000 crore over the six-year award period of the 15th Finance Commission. Further, the special grant of Rs.5,495 crore and state-specific grants of Rs.6,000 crore recommended by the 15th Finance Commission have not been released by the Union Government”.
“To claim the rightful share in tax devolution State urged the 16th Finance commission to adopt a more balanced and fair tax devolution formula that recognises both equity and efficiency. We suggested for reducing the excessive weight assigned to income distance, and to reward fiscal performance and contribution to the national economy while computing tax devolution formula”, the CM said.
The 16th Finance Commission has submitted its report for the award period 2026–31 and has recommended a tax devolution share of 4.131 per cent for Karnataka, which is an increase of 13% over the share recommended by 15th Finance Commission. While the State was expecting the restoration of devolution share of 4.71 per cent provided by the 14th FC, the 16th FC’s recommendation is a partial redressal of the injustice caused to the State, the CM noted.
