Ahead of Union Budget, Karnataka CM Siddaramaiah presses Centre to uphold fiscal federalism

Karnataka, he said, is among the country’s highest contributors to national revenues, but its share in tax devolution was earlier reduced from 4.71 percent to 3.64 percent, leading to a loss of nearly ₹80,000 crore.

Published Jan 30, 2026 | 7:50 PM ⚊ Updated Jan 30, 2026 | 7:50 PM

Karnataka Chief Minister Siddaramaiah

Synopsis: Ahead of the Union Budget 2026–27, Karnataka Chief Minister Siddaramaiah on 30 January, listed out the state’s demands before the 16th Finance Commission, alleging long-standing fiscal discrimination and seeking fairer tax devolution and stronger fiscal federalism. The chief minister urged the Commission to reflect these concerns in its recommendations and called on the Union government to implement them “in letter and spirit.”

Ahead of the Union Budget 2026–27, Karnataka Chief Minister Siddaramaiah on Friday, 30 January, listed the State’s demands before the 16th Finance Commission to rectify the alleged fiscal discrimination the State has suffered in the past.

In a statement, the chief minister said his government had placed its “legitimate and constitutionally grounded demands” before the Finance Commission, seeking justice in tax devolution and the upholding of fiscal federalism.

He added that he hoped the Commission would reflect these concerns fairly in its recommendations, and that the Union government under Prime Minister Narendra Modi would implement them “in letter and spirit, without subjecting Karnataka to petty politics or discrimination, as has unfortunately happened in the past”.

Karnataka, he said, is among the country’s highest contributors to national revenues, but its share in tax devolution was earlier reduced from 4.71 percent to 3.64 percent, leading to a loss of nearly ₹80,000 crore to the State.

He attributed the weakening of the State’s finances to a range of factors, including flawed formulas that penalise development and population control, unrealistic GSDP calculations, inadequate disaster support, unchecked cesses and surcharges, denial of GST compensation, and the non-release of recommended grants.

“Fair tax sharing is not a favour, but a right,” the statement said, adding that Karnataka seeks “only what is due — justice, fairness, and respect within India’s federal framework”.

Also Read: Falling GST revenues and welfare spending squeeze Karnataka ahead of Siddaramaiah’s record 2026 budget

The State’s demands

Strengthen fiscal federalism:
States are being weakened by unchecked cesses and a low share of taxes. Increase States’ tax share to 50 percent and cap cesses at 5 percent.
Stop penalising population control:
States that controlled population growth were unfairly punished. Restore the use of 1971 population data in tax sharing.
Correct flawed GSDP calculations:
IT exports inflate Karnataka’s GSDP and distort fair comparisons. Correct the unrealistic GSDP base-year methodology.
Invest in Bengaluru’s infrastructure:
Bengaluru needs Rs 1.15 lakh crore over five years to sustain growth. Allocate at least Rs 27,793 crore for Bengaluru’s infrastructure.
Restore Karnataka’s fair tax share:
Karnataka’s tax share was cut from 4.71 percent to 3.64 percent, causing a huge revenue loss. Karnataka demands restoration of at least 4.71 percent tax devolution.
Reward real decentralisation:
Local governments need funds to deliver effective governance. Adopt a Panchayat Devolution Index in fund allocation.
Reduce unfair income distance weightage:
High per-capita income hides inequality and regional backwardness. Reduce income distance weightage from 45 percent to 25 percent.
Protect ecologically sensitive regions:
The Western Ghats, Malnad and coastal regions safeguard India’s ecology. Provide special grants for ecology, farmers and irrigation support.
Give Karnataka its due for disasters:
Repeated floods and droughts have caused massive losses to the State. Increase Karnataka’s disaster risk weightage to 15 risk factor points.
Support Kalyana Karnataka fairly:
The region needs sustained support for development and resilience. Provide matching grants and a special Rs 10,000 crore package.