Bengaluru: Karnataka’s finances are facing a tight balancing act, with strong growth in tax collection offset by a sharp revenue shortfall following GST rate rationalisation and a slowdown in real estate, forcing the govt to carefully manage resources to fund development.The midyear review (MYR) of state finances has recorded a 7.7% year-on-year growth in tax collection, the highest among states. Karnataka also ranks second nationally after Maharashtra in gross GST collection during the first half of the current fiscal. Despite this, revenue stress continues. The state is staring at a GST shortfall of Rs 18,500 crore, while property registration revenue is expected to miss the target by about Rs 5,000 crore against the projected Rs 28,000 crore.While the gap between revenue and expenditure could have pushed the govt towards additional borrowings, chief minister Siddaramaiah, who also holds the finance portfolio, is said to be resisting the option and instead emphasising fiscal prudence and expenditure control.“Karnataka is known for its discipline in terms of managing finances and adherence to fiscal responsibility. The chief minister is of the view that we should not leverage the space for borrowing unless it is inevitable, as extensive borrowings would result in the mounting debt burden on the state,” said Basavaraj Rayareddi, economic advisor to the chief minister.In the 2025-26 budget, Siddaramaiah projected borrowings at Rs 1.2 lakh crore, taking Karnataka’s total liabilities to Rs 6.7 lakh crore, or 24.9% of the gross state domestic product (GSDP). Under the fiscal responsibility and budget management (FRBM) norms, total liabilities are capped at 25% of GSDP, a threshold the govt is keen not to breach.“We are exploring other options, including ramping up tax revenues through strict enforcement. Expenditure would be pruned wherever it is possible without hurting development,” said Ritesh Kumar Singh, principal secretary, finance.Rising interest payments are a key factor behind the govt’s cautious approach. The current year’s budget has pegged interest payments at Rs 45,600 crore, a 22% increase over 2024-25. Though the state still has room to borrow an additional Rs 30,000 crore, the chief minister is said to be unwilling to exercise that option, as higher borrowing would further inflate interest costs and dilute the benefits of fresh funds.—-QuoteAdditional borrowing is not a good idea in the present situation as it would only add to the unproductive committed expenditure. The govt should focus on investing the already borrowed money in job creation so that the income of people will increase and it will, in turn, push up the tax revenues-BDA Satya Babu Bose, public finance expert——GFX | State’s growing debt burdenFinancial YearBorrowings (Rs crore)Interest payment (Rs crore)2022–2372,00028,4272023–2485,81830,8262024–251,05,24636,6342025–261.2 lakh45,000Source: GoK
