Karnataka Budget 2026–27: Capex slows as committed expenses balloon and revenue takes a hit
While the Karnataka government harbors hopes of increasing the state’s own tax revenue and increasing borrowing to boost capital expenditure, it will have a lot of balancing act to do between inflating committed expenditure and reduction in revenue receipts.
“The growth in capital expenditure this year will be slow due to pressure on revenue receipts. The government’s power to raise revenue is limited. It will be slow in 2026-2027 compared to 2025-26, when capital expenditure increased by 35%,” a government source said.
Capital expenditure for 2026-27 is pegged at ₹74,782 crore, a modest increase from ₹71,336 crore in 2025-26. The capital expenditure in 2024-25 was ₹ 55,877 crore.
retired employees
According to sources, 2026-27 will witness the retirement of a large pool of government employees from service, adding to a burden of around Rs 4,000 crore, while the government’s recruitment drive for 56,432 posts will add around Rs 3,000 crore to Rs 4,000 crore to revenue expenditure.
Administrative expenses for running government offices across the state cost between ₹4,000 crore and ₹4,500 crore, while salary and pension expenses approach ₹1.33 lakh crore.
debt service
The government, which borrowed close to ₹1.16 lakh crore in 2025-26, is set to borrow ₹1.32 lakh crore in 2026-27. Debt service was ₹35,316 crore, up 33.4% over the revised 2025-26 estimates. The interest payment for 2026-27 is estimated at ₹ 53,332 crore. While the government’s total debt is increasing, its share of debt service is also expected to increase significantly next year. The fiscal deficit is estimated to be ₹ 97,449 crore in 2026-27 against ₹ 90,428 crore in 2025-26.
“When the revenue space is limited, the committed expenses need to be taken care of first,” government sources said. Guarantee schemes will receive around ₹51,599 crore this year and it is difficult to cut most of the scheme-based committed expenditure, sources say. Chief Minister Siddaramaiah advocated higher borrowing and said that every government increases credit and he also increased credit in his last term. “Fiscal deficit and total liabilities are within the limits prescribed by the Karnataka Fiscal Responsibility Act.”
The increase in committed expenditure comes at a time when revenue to the State has taken a hit of around ₹15,000 crore due to GST rationalization and cut making way for tax on sin and luxury goods, around ₹5,000 crore from Jal Jeevan Mission and around ₹3,000 crore from expected mining tax; The bill awaits the President’s approval.
Hopes for the future
While the State expects ₹2.20 lakh crore in State taxes, it expects ₹63,050 crore as its share in Central taxes and ₹16,000 crore in grants from the Centre. Non-tax income is estimated at ₹16,000 crore, down from ₹17,500 crore in 2025-26. Overall, revenue receipts are estimated at ₹3.15 lakh crore, up from ₹2.77 lakh crore in 2025-26.
On the other hand, the State government hopes to collect more money from the mining sector if the President approves the Karnataka (Mineral Rights and Mineral-bearing Land) Tax Bill, 2024.
The state government is aware of the revenue-raising potential in the mining sector and once the bill is passed, the sector has the potential to generate revenue of close to Rs 18,000 billion this year through one-time settlement, royalties and taxes. He also hopes that revenue from the Stamps and Registration Department will pick up after the slowdown in 2025-26 due to e-khata and other issues. “We expect to raise around Rs 5,000 crore through deferred or deferred transactions.”
The Excise Department, which is likely to collect close to ₹42,000 crore by the end of 2025-26, is expected to perform well, but officials admitted that the increase in revenues was due to the rising cost of liquor and not an increase in consumption. Auction of more than 500 excise licenses, which is expected to fetch around 1,000 crore for the government, is also among the avenues being considered by the government. The matter is currently in court.
Income deficit will continue
The revenue shortfall, mostly from guarantee financing, is likely to occur by 2029-2030 due to reduced revenue streams caused by GST rationalization. According to Chief Minister Siddaramaiah, although they hope to have a revenue surplus by the end of 2026-2027, this will have to wait due to revenue inflow. While the revenue deficit is expected to be ₹ 19,262 crore, it is estimated to be around ₹ 22,957 crore in 2026-2027. In 2024-2025, the revenue gap was around ₹ 27,354 crore.
It was published – 06 March 2026 22:07 IST
