With Karnataka set to lose about ₹15,000 crore annually in GST revenue after rate rationalization is introduced in October, the state’s revenue mobilization appears to be facing major challenges.
As the state considers monetizing government land, there has also been skepticism about the move with doubts about revenue realization. Another possible step, mobilizing resources in the Excise Department through auctioning of liquor licenses, also did not receive a favorable response.
Among the many “belt-tightening” exercises to reduce government spending in “challenging times”, as the minister described the state’s financial situation, the government could focus on streamlining beneficiaries of guarantee schemes, ending 30-40-year-old schemes/programmes that do not serve a meaningful purpose, and reducing spending on human resources.
“What are we left with after passing the GST? One of the options could be increased loans,” the minister said.
Loans
The state has earmarked ₹1.16 crore for borrowing this fiscal and has utilized ₹4,265 crore so far. Normally, borrowings start to increase at the end of the third quarter. In 2024–25, against the earmarked ₹1.05 lakh crore, the state ended up borrowing about ₹1 crore.
The government’s concern over revenue loss comes as the growth rate of GST revenue between September and November this year was reported as 3% against 12% for the corresponding period 2024-25, even though the state had expected an average growth rate of about 12% during this period, sources said.
A leading government source on land monetization issues said: “The experience of land monetization in the past has shown that the expected revenue is not met as the auction price may be just above the government’s guide value, not the market value. We may not be able to realize the full value of the land and lose valuable and rare government land. There is also a chance of allegations of corruption.”
He added that the Congress government has not auctioned any land since assuming power in May 2023.
Major projects in the preparation phase
The severe crisis could come at a time when Karnataka is gearing up for major projects, including an estimated ₹75,000 crore for the land acquisition cost of the Upper Krishna Project (UKP) alone. “The move (land acquisition) is inevitable, but it comes at a challenging time,” the minister said.
Incidentally, the Congress government is rolling out its five flagship guarantee schemes for which around ₹52,000 crore has been earmarked in the 2025-26 budget.
License auction option
As the government is trying to mobilize revenue by auctioning 579 lapsed licenses in two categories, which are expected to fetch over ₹500 crore, the move has been red flagged.
A senior Congress legislator from Aland, BR Patil, is learned to have written to the chief minister against the move, citing the Gandhi Bharath Abhijan currently underway in Karnataka to mark the centenary of Mahatma Gandhi presiding over the 1924 Belagavi Congress session.
The minister also expressed his concerns. “The auction is a one-time revenue generator and cannot cover the huge revenue shortfall. Excise revenue is growing, but we cannot push the sector all the time.”
Excise revenue increased by 11.33% between April and October in 2025-26 over the same period in 2024-25.
Impact of GST
The state estimates it will lose around ₹6,000 to ₹7,000 crore in GST revenue due to rate rationalization and about ₹9,000 crore due to the Centre’s decision to transfer revenue earned from the sale of tobacco and pan masala by imposing a cess, which is not shared by the states.
A recent review meeting of the Commercial Taxes Department conducted by Chief Minister Siddaramaiah found that it is estimated that the state could end up collecting about ₹1.05 crore in 2025-26 against a target of ₹1.2 crore.
Besides, according to the finance department, relief grants and other contributions from the Center were 26.87% lower between April and October 2025 compared to the same period last year. Revenues collected by the State Stamp and Revenue Board decreased by 0.42% compared to the previous year.
Published – 8 Dec 2025 20:50 IST
