The Karnataka government has urged the Union Government to ensure revenue protection for States in the aftermath of GST rate rationalisation and to increase the sharing of excise duty and cess on pan masala and tobacco products in the Union Budget 2026-27.
These demands were raised during the pre-Budget consultations chaired by Union Finance Minister Nirmala Sitharaman in New Delhi on Saturday.
Karnataka Flags Shrinking Fiscal Space
Karnataka Revenue Minister Krishna Byre Gowda represented the State at the consultations. As per convention, the Union Budget for 2026-27 will be presented on February 1, 2026.
Presenting the State’s views, Karnataka highlighted that despite being a major contributor to national economic growth, its fiscal space has narrowed due to GST rate rationalisation, rising social sector commitments, climate-related shocks, and rapid urbanisation. The State noted that the responsibilities of States have expanded faster than their revenue base.
GST Revenue Slowdown After Rate Rationalisation
The State flagged a sharp slowdown in GST revenue growth following the 2025 rate rationalisation, resulting in a revenue shortfall. Karnataka sought a revenue protection and compensation mechanism for States, similar to the earlier GST Compensation Cess.
Call for Sharing Tobacco and Pan Masala Levies
Karnataka also demanded a 50:50 sharing of excise duty on tobacco products and cess on pan masala. The State argued that while States bear the health, regulatory, and enforcement costs associated with these products, the proceeds remain outside the divisible pool.
Pending Central Dues Under Jal Jeevan Mission
On the Jal Jeevan Mission, Karnataka pointed out that it has released ₹24,598 crore against a Central release of ₹11,786 crore, including advances made to prevent disruption of works. The State sought the urgent release of the pending Central share.
Concerns Over Rural Employment Reforms
Raising concerns over rural employment, Karnataka urged the Centre to reconsider the shift from the demand-driven MGNREGA to the allocation-based G-RAM-G scheme. The State said the change has reduced effective employment days and imposed an additional fiscal burden.
Agriculture and Social Sector Demands
In agriculture, Karnataka proposed implementing a Price Deficiency Payment Scheme under PM-AASHA for eight crops, maize, soybean, mango, chilli, onion, tomato, turmeric, and ginger, and sought additional allocation for 2026-27.
The State also called for an upward revision in the Central contribution for frontline workers, seeking monthly honorariums of ₹8,000 for Anganwadi and ASHA workers and ₹5,000 for cooks and helpers. It further demanded expanded coverage and higher pension amounts under the National Social Assistance Programme.
Upper Bhadra Project Funding Sought
Karnataka reiterated its request to declare the Upper Bhadra Project a National Project and sought the release of ₹5,300 crore in Central assistance announced earlier.
Centre Holds Pre-Budget Consultations
Union Finance Minister Nirmala Sitharaman chaired the pre-Budget consultation meeting with States and Union Territories (with legislatures) as part of preparations for the Union Budget 2026-27.
Source: TheTribune