Image for representational purposes only. | Photo credit: Getty Images/iStockphoto
The share of central transfers – including tax devolution, central grants and funding of centrally sponsored schemes – in Karnataka’s revenue is declining significantly.
The data portion of the Medium Term Fiscal Plan (MTFP), tabled by Chief Minister Siddaramaiah on Friday as part of the 2026-27 budget papers, shows the share of central transfers in the state’s resource envelope reduced from 32.1% in 2017-18 to 25.1% in 2026-27, a major drop of 21.8%. In the same period, the share of the state’s own income in the envelope of resources increased from 67.9% to 74.9%.
The MTFP further shows that for 2023-24, Karnataka’s revenue was only 24.3% from central transfers, even though the all-India average for states was 43.4% that year. The data shows that the trend was the same even when the BJP was in power in the state.
State income composition
2017-182026-27Central transfers32.1%25.1%State own revenues67.9%74.9%
Decrease in share of central transfers: 21.8%
FY 2023-24 Karnataka All India Average Central Transfers 24.3% 43.4% State Own Revenue 75.7% 56.6%
16th FC relief
The declining share of central transfers to the state is despite the 16th Finance Commission report, which provides some solace, revising the state’s share of the tax pool from 3.64% to 4.13%. However, this is still lower than the recommendations of the 14th FC which fixed the state share at 4.71%.
Although it shows that over the past decade, the state’s own revenue has grown at a compound annual growth rate (CAGR) of around 11%, “reflecting sustained economic growth, improved tax burden and enhanced revenue mobilization efforts”.
Mr Siddaramaiah and several opposition-ruled state governments in South India have consistently claimed that the BJP-led NDA regime in Delhi is giving these states “step-motherly treatment”. Congress MLAs in the state staged a protest in February 2024 against the Union Government in Delhi led by the Chief Minister himself.
Load on central systems
A combination of factors and changes in centrally sponsored schemes are also adding to the additional fiscal pressure on the state.
For example, Chief Minister Siddaramaiah on Friday pointed out that under the new The Viksit Bharat—Garantee for Rozgar and Ajeevika Mission (Gramin) (VB—G RAM G) Act, 2025, the share of Center and State has been fixed at 60:40, as against 90:10 under the State Employment Act 20 and Romania, it2005 Mahatma National Guarantee. replaces It places an additional burden of around ₹2,000 crore on the state, he said.
No. Category of Workers Honorarium per Month Central Share in CroreState Share in CroreState Increase in CroreASHA Workers42,524 ₹8,000 ₹102 ₹306₹306 Anganwadi Workers65,933 ₹12,000 ₹214₹Anwagandiwagandi 214₹ Helpers ₹65,933 ₹7,000 ₹107 447,376 State Anganwadi Workers ₹3,988 ₹12,0000₹57₹57 State Anganwadi Helpers ₹3,988 Daily Meal ₹7,0000₹33M Cooks46,617₹4700₹34 191₹207 Lunch Helpers 79 486₹4600₹57₹318₹343Total 308 469₹55 300₹55,300₹
Release delay
Delays and shortfalls in the release of central funds under centrally sponsored schemes have put significant pressures on the state’s cash flows, the MTFP said. In his Budget speech on Friday, the Chief Minister pointed out that the Center had arrears of ₹19,102 crore for works taken up under the Jal Jeevan Mission scheme in Karnataka and had not released any funds in 2025-26. The state government has additionally released grants of ₹15,500 crore in the interest of the scheme, he said.
State charging
Furthermore, the lack of regular reviews of unit costs has led to an increasing number of cases where the state has had to increase funding for centrally sponsored programs through increases, particularly in honorariums and incentives for frontline workers.
Central contributions to these honorariums have remained unchanged for a long time despite the rising cost of living and expanded responsibilities, MTFP says. As a result, the state has to fund ₹1,917 crore. The government surcharge is often implemented in response to protests by frontline workers demanding wage revisions.
Social security insurance
Likewise, spending pressures have intensified due to the expansion of social security and the limited extent of central cost-sharing in key pension systems, the MTFP points out. Under the National Social Assistance Program (NSAP), the Center currently supports only 14.14 lakh beneficiaries in Karnataka, while the state covers another 80.31 lakh beneficiaries. As per the revised estimates of 2025-26, the expenditure on social security pensions is pegged at ₹10,668 crore, of which the Center is footing only about 6% of the bill, ₹639 crore, the data shows.
“Limited coverage and stagnant amount of central support under social security and related schemes have substantially shifted the fiscal responsibility to the state, underscoring the need to extend NSAP coverage to at least 50% of beneficiaries and increase central contribution to reduce recurring fiscal pressures,” MTFP said.
Published – 8 March 2026 19:40 IST
