Budget: CM Criticizes Centre for Fund Distribution; Highlights Karnataka's Strong Growth in Realizing Its Goals

Bengaluru, March 7 (NationPress) During the budget presentation for the fiscal year 2025-26, Chief Minister Siddaramaiah criticized the Centre for inadequate fund allocations and the loss of GST revenue impacting Karnataka. CM Siddaramaiah emphasized that despite these hurdles, Karnataka continues to fulfill its vision due to the strong growth in the state’s own revenue streams.

On Friday, CM Siddaramaiah remarked, “Karnataka is recognized for its sound fiscal policies, effective debt management, and commitment to fiscal discipline. It was the first state to enact the FRBM Act before the Government of India and has also pioneered the inclusion of off-budget borrowings in total liabilities.”

He further noted, “The Union government's inability to adequately compensate for GST revenue losses, the non-devolution of cesses and surcharges, and reduced tax devolution from the 15th Finance Commission have intensified the fiscal challenges faced by the state. Consequently, Karnataka is encountering revenue hurdles in its quest for sustainable growth along with social equity.”

Following the implementation of the 15th Finance Commission devolution formula, central fund transfers to Karnataka have experienced a significant drop.

Karnataka has witnessed the steepest decrease in the share allocated by the 15th Finance Commission.

According to CM Siddaramaiah, “Karnataka’s share of tax devolution in the divisible pool was cut down to 3.647 percent in the 15th Finance Commission period from 4.713 percent in the 14th Finance Commission,” highlighting a 23 percent reduction in devolution, amounting to an estimated revenue loss of ₹12,000 crore annually.

The 15th Finance Commission recommended a special grant of ₹5,495 crore to Karnataka to address the decline in its devolution share, alongside ₹3,000 crore for lake development in Bengaluru and ₹3,000 crore for the development of the Peripheral Ring Road, totaling ₹11,495 crore.

“However, the Central Government has yet to release any of these funds to the state,” CM Siddaramaiah pointed out.

He also emphasized, “In the Union Budget for 2023-24, ₹5,300 crore was earmarked for the Upper Bhadra Irrigation Project, but the Centre has not disbursed any grants so far.”

Karnataka has made a compelling case before the 16th Finance Commission for an enhanced share in tax devolution.

CM Siddaramaiah urged the commission to balance the dual aspects of equity and growth to foster a harmonious and effective fiscal federalism.

“While economically advanced states are dedicated to assisting poorer states, this should not detract from their residents’ welfare or economic efficiency. Moreover, there are conceptual and methodological flaws associated with the per-capita GSDP variable, which we have strongly advocated reducing in significance,” he elaborated.

“We have suggested that the distribution between the Centre and states should be at least 50 percent of the divisible pool, ensuring equitable resource allocation between the two.”

“Cesses and surcharges imposed by the Central Government should be limited to 5 percent of gross tax revenue, with any excess incorporated into the divisible pool.”

“Within the Horizontal Pool, the state should retain about 60 percent of its contribution to the divisible pool, which is designated for allocation among states, thereby capping resource transfers to recipient states at 40 percent,” CM Siddaramaiah concluded.

“Despite these challenges, Karnataka is successfully realizing its vision due to a robust increase in the state’s own revenue collections and the persistent efforts of the state government in revenue mobilization. State revenue collections are projected to grow by 10.3 percent year-on-year in 2024-25,” he highlighted.