Bengaluru: Karnataka has hit the 3% fiscal deficit ceiling — the maximum permitted under the Fiscal Responsibility Act — as borrowings surge to meet expenditure commitments outlined in the 2025-26 budget. Though the state projected a fiscal deficit of 2.95% of gross state domestic product (GSDP), estimated at Rs 90,428 crore, in the 2025-26 budget documents, the deficit has now touched the 3% threshold. Officials attribute the slip to a widening gap between revenue mobilisation and expenditure. The mid-term fiscal plan shows revenue has fallen short of projections, while spending pressures have continued to mount, largely due to the implementation of the guarantee schemes and welfare measures. “We have begun preparations for this year’s budget, and the CM will have to take a decision on how to approach the next fiscal,” said Ritesh Kumar Singh, additional chief secretary (finance). He said borrowings are expected to increase. “While borrowings may touch Rs 93,000 crore in the upcoming quarter, as projected by a Reserve Bank of India (RBI) report, it is nothing alarming or new,” Singh said. Pointing to a recurring pattern, he said, “Each year our fiscal deficit grows and so does our borrowings. Traditionally, 75% of our borrowing happens in the fourth quarter. This year, it may be the highest.” Singh said borrowing patterns vary across states, with many spreading loans across all four quarters to manage cash flow and clear past liabilities. “For example, certain states may have an overhang of two months from the previous fiscal’s fourth quarter and may be forced to borrow heavily in the first quarter to clear bills,” he said. “While Karnataka may have an overhang of two weeks in the first quarter of the new fiscal year, the financial management has been quite prudent from our end.” Chief minister Siddaramaiah will soon begin preliminary work on his record 17th budget amid tight fiscal headroom and rising expenditure demands. The budget is likely to be presented either at the end of Feb or first week of March.
