With Karnataka estimated to lose about ₹15,000 crore annually in GST revenue after rate rationalisation was implemented in October, the State’s revenue mobilisation seems to be facing crucial challenges.
While the State is considering monetisation of government land, scepticism has also emerged over the move with doubts over revenue realisation. Another possible move, to mobilise resources in the Excise Department through auctioning liquor licenses, has also not received a favourable response.
Among the many “belt tightening” exercises to trim government expenditure in the “challenging times”, as a Minister described the State’s financial situation, the government could be looking at streamlining guarantee scheme beneficiaries, ending 30 to 40-year-old schemes/programmes that do not serve meaningful purpose and cutting down on expenditures on human resources.
“What is left with us after surrendering to GST? Increased borrowings could be one option too,” said the Minister.
Borrowings
The State has earmarked ₹1.16 lakh crore for borrowing this fiscal and so far has availed ₹4,265 crore. Normally, the borrowing starts increasing by the end of the third quarter. In 2024-2025, as against the earmarked ₹1.05 lakh crore, the State ended up borrowing about ₹1 lakh crore.
The government’s anxiety over the revenue loss comes as the GST revenue growth rate between September and November this year has been reported to be 3% as against the 12% for the corresponding period of 2024-2025, even as the State was expecting an average growth rate of about 12% in the period, sources said.
A top government source said on problems with land monetisation, “The experiences in land monetisation in the past has shown that the expected revenue is not met, as auction price could be just above the government set guidance value and not the market value. We may not be able to realise the full value of the land and we will lose precious and scarce government land. There are chances of allegations of corruption too.”
He added that the Congress government since assuming power in May, 2023, has not auctioned any land.
Big projects in pipeline
The severe crunch could be coming at a time when Karnataka is preparing to take on big projects, including an estimated ₹75,000 crore for the land acquisition cost alone in the Upper Krishna Project (UKP). “The move (land acquisition) is inevitable but coming at a challenging time,” a Minister said.
Incidentally, the Congress government is implementing its flagship five guarantee schemes for which about ₹52,000 crore have been allocated in the 2025-2026 Budget.
Licence auction option
As the government is looking to mobilise revenue through auction of 579 defunct licences in two categories that is expected to fetch over ₹500 crore, the move has been red flagged.
Senior Congress legislator from Aland, B.R. Patil, is learnt to have written to the Chief Minister against the move, citing Gandhi Bharath Abhiyan currently under way in Karnataka to mark the centenary celebrations of Mahatma Gandhi chairing the Belagavi Congress session in 1924.
The Minister also expressed his apprehension. “Auctioning is a one-time revenue generation, and it cannot meet the huge revenue shortfall. The excise revenue is growing, but we cannot squeeze the sector all the time.”
The excise revenue has increased by 11.33% between April and October in 2025 -2026 over the corresponding period in 2024-2025.
GST impact
The State estimates that it is set to lose about ₹6,000 crore to ₹7,000 crore in GST revenue due to rate rationalisation, and about ₹9,000 crore from the Centre’s decision to transfer the revenue collected from sale of tobacco and pan masala by imposing the cess, which is not shared with States.
At a recent review meeting of the Commercial Tax Department by Chief Minister Siddaramaiah, it is learnt that it was estimated that the State could end up collecting about ₹1.05 lakh crore against a target of ₹1.2 lakh crore in 2025-2026.
Besides, as per the Finance Department, the grants in aid and other contributions from the Centre was 26.87% less between April-October 2025 compared to corresponding period last year. The revenue collected by the State’s Stamps and Revenue Department was down by 0.42% compared to the previous year.
