Karnataka Budget 2026-27: Share of Central funds decreasing by the year adds to fiscal pressure

Karnataka's fiscal pressure intensifies as Central fund transfers decline from 32.1% in 2017 to 25.1% by 2027.

The share of Central transfers — including tax devolution, Central grants and funding for Centrally-sponsored schemes — in Karnataka’s revenue receipts is coming down significantly.

Data part of Medium Term Fiscal Plan (MTFP), presented by Chief Minister Siddaramaiah as part of the 2026-27 Budget documents on Friday, shows the share of Central transfers in the State’s resource envelope reduced from 32.1% in 2017-18 to 25.1% in 2026-27, a big drop of 21.8%. During the same period, the share of State’s own revenues in the resource envelope increased from 67.9% to 74.9%. 

The MTFP further shows for the year 2023-24, Karnataka’s revenue had only 24.3% from Central transfers even as the All India Average for States that year was 43.4%. Data shows the trend has been the same even when BJP was in power in the State.

Drop in share of central transfers: 21.8% 

The decreasing share of Central transfers to the State is despite the 16th Finance Commission Report providing some solace revising the State’s share in the tax pool from 3.64% to 4.13%. However, this is still lower than the recommendation of the 14th FC, which pegged the State’s share at 4.71%. 

While this shows that over the last decade State’s Own Revenue has grown at a compound annual growth rate (CAGR) of approximately 11%, “reflecting sustained economic growth, improved tax buoyancy and strengthened revenue mobilisation efforts”.