Karnataka Budget: Ambitious welfare, infra push amid rising debt

Karnataka Chief Minister Siddaramaiah on Friday (March 7) presented the state’s ₹4.095 lakh crore budget for 2025-26, marking a 10.4 per cent increase from the ₹3.71 lakh crore budget in 2024-25.

The budget attempts to balance large-scale welfare programmes with a massive capital investment drive while addressing fiscal deficit concerns through revenue mobilisation and borrowing.

The total borrowings for 2025-26 have surged to ₹1.16 lakh crore, reflecting a 41.46 per cent increase over the previous year’s ₹82,000 crore. This includes loan repayments of ₹26,474 crore, contributing to the state's total estimated liabilities.

Increased debt, but within limits

At the end of 2025-26, the total outstanding liabilities of the state are projected to be ₹7,64,655 crore, which is 24.91 per cent of the Gross State Domestic Product (GSDP). While the absolute debt level has risen, the government has emphasised that it remains within the fiscal prudence limits set by the Karnataka Fiscal Responsibility Act.

To peg borrowing levels and maintain fiscal discipline, the budget projects ₹2,08,100 crore from tax revenues and ₹16,500 crore from non-tax revenues. Additional revenue streams include ₹40,000 crore from excise duties, ₹28,000 crore from stamps and registration fees, ₹15,000 crore from transport taxes, and ₹3,000 crore expected from a new tax on mineral extraction.

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The fiscal deficit for 2025-26 is projected at ₹90,428 crore, which is 2.95 per cent of GSDP - a slight improvement from 3.0 per cent in 2024-25. The revenue deficit has been reduced to ₹19,262 crore, improving fiscal sustainability. This rise in the absolute deficit is mainly due to increased capital expenditure, which has been increased by 47 per cent to ₹82,000 crore in 2025-26, along with continued welfare spending.

Industry-friendly initiatives

Siddaramaiah, delivering his record 16th state budget, pointed out that the Karnataka New Industrial Policy 2025-30 aims to attract investments worth ₹7.5 lakh crore and generate 20 lakh jobs by fostering a business-friendly environment. The government will also introduce the Karnataka Employer’s Compliance Decriminalisation Bill and the Karnataka Employer’s Compliance Digitisation Bill to facilitate ease of compliance for industries. These initiatives will make Karnataka the first state in India to decriminalise employer violations and fully digitise compliance processes.

Infrastructure expansion: Bengaluru and beyond

The Bengaluru Suburban Railway Project, the budget noted, is progressing with a total investment of ₹15,767 crore. It will feature a 148-km network with 58 stations, designed to improve urban transit and reduce congestion. The state also plans to increase installed capacity from 32 GW to 60 GW to address Karnataka’s growing electricity demand. In 2022-23, capacity rose from 31.83 GW to 34.99 GW. Additionally, the Godhna Thermal Power Plant, with a capacity of 800 MW, will be operational at a cost of ₹13,000 crore through a Tariff-Based Competitive Bidding process.

The Five Guarantee Schemes

The government continues its five guarantee schemes, allocating ₹51,034 crore, a 4.9 per cent reduction from ₹53,674 crore in 2024-25. While the five guarantee schemes remain a core part of the budget, the reduction in allocation suggests a more measured approach to welfare spending, ensuring that Karnataka's fiscal health is not compromised in the long run.

Key welfare measures

Education, Agriculture, and Rural Development:

- ₹500 crore for 250 Moulana Azad Model English Medium Schools.

- ₹100 crore to upgrade 100 Urdu medium schools.

- ₹1,000 crore for the Minority Colony Development Programme.

- ₹1,292 crore for 61 new residential schools for Scheduled Castes, Scheduled Tribes, and Backward Classes.

- ₹500 crore for 5,000 new micro-food processing units to support farmers.

- ₹88 crore to boost Toor Dal production to make Karnataka self-sufficient in pulses.

- ₹440 crore for micro-irrigation for 1.81 lakh farmers to address water shortages.

- Dr BR Ambedkar Fellowship: ₹1 crore grant for two students to study at the London School of Economics and Columbia University.

- ₹5,000 crore for rural development programmes, including Hasiru Pathas (green pathways), Krishi Patha (farm roads), and groundwater conservation schemes.

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Politically-astute, growth-focussed

The Karnataka Budget 2025-26 is ambitious, politically-astute, and focussed on growth. However, its success hinges on effective revenue mobilisation and timely execution of infrastructure projects. Without strong fiscal discipline and strategic planning, the rising debt burden could become a long-term financial risk for the state.