GST rationalisation likely to impact Karnataka’s Budget size

Karnataka's budget faces challenges due to GST rationalisation, widening fiscal deficit, and delayed revenue surplus goals.

With preparations under way for the State Budget to be presented on March 6 amid GST rate rationalisation pinching revenue collection, the Karnataka government is not only expecting a widening fiscal deficit, but also the overall goal of having a nominal revenue surplus Budget slip away by a couple of years. As the revenue has been hit considerably owing to GST rate rationalisation, the overall Budget size is also expected to shrink nominally over the 2025-2026 outlay.

“We were hoping to be a marginal revenue surplus State by 2027-2028. The GST issue alone has actually pushed that target further away. Whenever there is a revenue shortfall, the size of the Budget comes down proportionately,” a government source, who is part of the Budget preparations, told The Hindu. “The revenue loss from GST alone next year is estimated to be at least ₹16,000 crore. If not, we would have been very close to revenue surplus.”

Chief Minister Siddaramaiah, who holds the Finance portfolio, will be presenting his record 17th Budget next month.

In 2023-24, when Mr. Siddaramaiah presented the first Budget of the Congress government in the current tenure that had allocations for guarantee schemes, the estimated revenue deficit was about ₹12,523 crore, which came down to about ₹8,000 crore in revised estimates.

The revenue deficit in 2024-2025 was estimated to be about ₹27,354 crore but ended up to be a little less than ₹20,000 crore. In 2025-2026, the revenue deficit, which is estimated to be around ₹19,262 crore, is expected to widen with GST losses and slowdown in revenue collection in Stamps and Registration Department.

“When there is reduction in revenue, the revenue deficit will definitely expand. We do not know where the deficit will end this year.”