Bengaluru: Days away from the start of a new fiscal, Karnataka’s finances appear poised on a familiar fault line — sluggish revenue growth and rising dependence on borrowing. While the state’s gross state domestic product (GSDP) is projected to expand, budget numbers indicate loans will climb in 2026-27, with a sizeable portion likely to fund revenue expenditure rather than asset creation.The govt’s budget estimates show Karnataka is expected to close 2025-26 with borrowings of more than Rs 1.1 lakh crore — up from around Rs 1 lakh crore in 2024-25. The steady rise is projected to push total liabilities beyond Rs 7.6 lakh crore. This would still be under 25% of projected GSDP of about Rs 30.7 lakh crore and within limits prescribed by Fiscal Responsibility and Budget Management (FRBM) norms.
If the state’s population is pegged at 7 crore, per capita debt works out to nearly Rs 1.1 lakh. This is close to half the per capita income cited in the previous state Economic Survey. In its mid-term fiscal review tabled in Dec 2025, the state had estimated total liabilities at 24.9% of GSDP.But Reserve Bank of India in its Study of Budgets of 2025-26 released in Jan 2026, pegged Karnataka’s total liabilities at Rs 8.1 lakh crore by March 31. Karnataka has disputed that figure.A state finance department statement, read: “The figure of Rs 8.1 lakh crore reported externally overstates the state’s liabilities. The correct figure of state total liability is likely to be Rs 7.6 lakh crore at the end of 2025-26.”Revenue mobilisation remains key. Against a target of Rs 2 lakh crore from the state’s own taxes in 2025-26, the govt collected about Rs 1.5 lakh crore till the end of Jan. Except for excise department, most major revenue heads are expected to miss targets. Borrowing is set to bridge the shortfall.Chief minister Siddaramaiah is expected to lean on projected GSDP growth to justify higher borrowing in the next fiscal. With the state economy estimated to expand to at least Rs 32 lakh crore, Karnataka can raise more debt in absolute terms while remaining within the 25% liability cap under FRBM.“We will borrow to fill revenue gaps and ensure growth,” said Basavaraj Rayareddi, economic adviser to the CM. “But our borrowings will be well within allowed limits as Karnataka always stands for fiscal discipline and prudence unlike BJP at the Centre.”But economists say the focus should be on how borrowed funds are spent. “Borrowing is justified only when it is used for productive spending. Otherwise, it amounts to valuation,” said BDA Satya Babu Bose, director, Centre for Rural Development and Study.With committed expenditure on salaries, pensions and interest payments rising steadily, the room for capital investment could shrink further. For a state already facing revenue stress, the coming fiscal may see debt deepen not just in size, but in structural dependence on borrowing.
