Revenue shortfall set to force Karnataka govt to cut budget outlay by 6% | Bengaluru News

Bengaluru: The state govt is looking at an inevitable option of revising down the budget size for 2025-26 with a huge revenue shortfall looming large for multiple reasons, including the GST rate rationalisation.Senior govt officials said the budget size for the current fiscal year, estimated at Rs 4.09 lakh crore is likely to be cut by around 6% to Rs 3.85 lakh crore.If this happens, it will be the third successive time that the budget outlay is being reduced from the estimated figure and it also means that there will be a shortage of funds for development since the capital expenditure will be cut proportionately.The budget outlay (total expenditure) was revised down by 1% from the estimated Rs 3.71 lakh crore to Rs 3.65 lakh crore in 2024-25 and it was reduced from Rs 3.27 lakh crore to Rs 3.17 lakh crore – a 3% reduction – in the previous year.This compares with the 9% upward revision of the budget estimate from Rs 2.65 lakh crore to Rs 2.89 lakh crore in 2022-23.“The state finances are really in a difficult condition with our revenues spiralling down. And the downward revision of the budget outlay looks inevitable. Ironically, this is despite the robust economic growth in Karnataka and blame is on the wrong steps taken by the Centre in the guise of taxation reforms,” said CM’s economic adviser Basavaraj Rayareddi.While this impacts the developmental activities adversely this year, the decline will spill over to the next year, even as CM Siddaramaiah, who holds the finance portfolio, has just begun preliminary exercise to prepare the budget for 2026-27.If the outlay is reduced to Rs 3.85 lakh crore this year, then it may go up to Rs 4.1 lakh crore for the next year with a conventional less than 10% year-on-year growth, keeping effective growth stagnated.The main reason being claimed for the dire situation is the GST rate rationalisation, which restructured the four-tier slabs of 5%, 12%, 18% and 28% to two-slab structure of 5% and 18%.The midyear review (MYR) of state finance presented in the legislature has stated that the GST rate rationalisation is expected to result in the state suffering a revenue shortfall of around Rs 9,000 crore from commercial taxes.It said Karnataka will suffer another Rs 9,500-crore dent because of the Centre’s decision to levy cess on luxury and sin goods and not to share it with states.Apart from this, a slowdown in the real estate sector, coupled with glitches in the e-khata portal that dealt a blow to property registration, has resulted in a 1% decline in revenue from the same period last year.“Things are looking up now after the slow pace seen in the initial two quarters. We expect a remarkable recovery in the last two quarters and are trying hard to reach the target,” said Mullai Muhilan, inspector general of registration and commissioner of stamps.Only the excise department among the major revenue departments has shown promising progress this year, collecting Rs 19,670 crore till Sept as against the annual target of Rs 40,000 crore. The transport department has achieved 38.7% of its annual target of Rs 15,000 crore so far.With this, a downsizing of the estimated outlay looks imminent and the finance department is even said to be thinking of issuing an advisory to all other departments to prioritise their expenditure for the rest of the year.While the govt cannot cut committed expenditure, inclusive of salaries, pensions and interest payments and also cannot reduce spending on welfare schemes such as guarantees for political reasons, the soft target available is the capital expenditure meant for development. Siddaramaiah pegged the capital expenditure at Rs 71,000 crore, and it is likely to be cut substantially.“We are still watching as the revenue shortfall is the biting reality after the GST rate cut. The revenue trends in Dec and Jan are crucial. We will think of measures after the end of Jan,”said Ritesh Kumar Singh, principal secretary, finance. ——-GFXRevision trendBudget outlay 2025-26Estimated: 4,09,000 croreRevised (expected): Rs 3,8500 croreChange: -6%2024-25Estimated: 3,71,383 croreRevised (expected): Rs 3,65,865 croreChange: -1%2023-24Estimated: 3,27,747 croreRevised (expected): Rs 3,17,836croreChange: -3%2022-23Estimated: 2,65.720 croreRevised (expected): 2,89,653 croreChange: + 9%Source: GoKQuoteThe state finances are really in a difficult condition with our revenues spiralling down. And the downward revision of the budget outlay looks inevitable. Ironically, this is despite the robust economic growth in Karnataka and blame is on the wrong steps taken by the Centre in the guise of taxation reforms-Basavaraj Rayareddi, CM’s economic adviser