The State will pursue all remedies and continue to raise its voice at every platform on skewed devolution formulae adopted by Finance Commissions, Karnataka Chief Minister Siddaramaiah told Bansy Kalappa during an exclusive chat with The New Indian Express on financial challenges before the state, as it preps for the budget.
Will additional allocations made by the 16th Finance Commission impact the Karnataka budget positively?
The 16th Finance Commission’s additional allocations must be viewed through the lens of fairness and federal balance. Karnataka is one of India’s foremost economic engines, leading in technology, GST contribution, exports and innovation. Any enhanced allocation is not a concession, but a partial correction of long-standing fiscal imbalance faced by progressive states like ours.
While such allocations may provide additional fiscal space for infrastructure, social justice initiatives, agriculture and human development, the larger concern remains. A state that has demonstrated fiscal discipline and population stabilization cannot be penalized for its success through skewed devolution formulas and excessive reliance on cesses that bypass states.
Karnataka seeks equity, not generosity. We will continue to craft an ambitious, growth-driven and inclusive budget anchored in our own strength. We expect true cooperative federalism, where contribution and commitment are respected, and Karnataka receives its rightful share in the national framework.
How do you see the way forward? Will future finance commissions be pushed into setting right the anomalies of the 15th Finance Commission?
The way forward must be anchored in restoring fiscal balance and protecting the spirit of cooperative federalism. The distortions that emerged during the 15th Finance Commission period, particularly criteria that disadvantage states which ensured population stabilization and maintained fiscal discipline, must be addressed transparently and structurally.
Future finance commissions have a responsibility to correct these anomalies, and ensure that performance, contribution and responsibility are rewarded and not penalized. Equity cannot mean diminishing the rightful share of states that drive national growth. Karnataka will continue to pursue all constitutional remedies and raise its voice across every available platform. Our tax contribution is not a favour to the nation, it is our right to receive our just share. We will stand firmly with the people of Karnataka to protect their interests and uphold true federalism.
From the 14th to 15th Finance Commission, devolution dropped from 4.71 per cent to 3.64 per cent, and was increased to 4.13 per cent this year. Your response?
It is true that Karnataka’s share saw a steep fall from 4.71 per cent under the 14th Finance Commission to 3.64 per cent under the 15th Finance Commission, and while the recommendation of 4.13 per cent offers a marginal correction, it does not undo the injustice that was done. We must remember that Karnataka is a high-performing, growth-driving state that contributes significantly to the national economy. Partial restoration cannot be projected as generosity.
Even at 4.13 per cent, Karnataka remains below what it rightfully deserves, and this shortfall translates into a loss of Rs 10,000-15,000 crore every year. This money could have been invested in welfare, infrastructure, irrigation and jobs. Our position is clear and principled -- devolution must reward performance, contribution and responsibility. A strong Karnataka strengthens India, and fiscal federalism must reflect that truth.
You said you have written letters and taken it up with the Centre. What else do you propose to do in your fight for justice? How will this affect development of any state?
We have consistently raised these concerns through formal memoranda, representations and meetings with the Union government and Finance Commission, because this is not a political favour we are asking, but a matter of constitutional fairness. Our fight for justice will continue in a democratic and institutional manner, by building consensus with other like-minded states, placing facts before national forums, and engaging Parliament and the public with clarity and dignity.
This issue goes beyond Karnataka; it affects the growth potential of every high-performing state. When states are denied adequate resources despite carrying the primary responsibility for health, education, infrastructure and welfare, development slows down, investment decisions get constrained, and fiscal stress increases. Strong states are the engines of national growth, and weakening them ultimately weakens India’s overall economic momentum. Our effort is to ensure a federal framework that empowers states to grow, deliver and contribute to the nation.
You have written articles in newspapers to highlight this issue, and Congress leaders point out that no BJP MP has raised this issue in Parliament...
Yes, I have written and spoken publicly on this issue because it affects the future of Karnataka and deserves national attention. Writing articles and engaging with the media is a responsible effort to place facts before the people and policy makers. At the same time, it is a matter of concern that not a single BJP MP from Karnataka has effectively raised this issue in Parliament. When the interests of the state are at stake, political affiliation should come second.
Karnataka expects its representatives in Parliament to speak in one voice, irrespective of party lines. Silence in Parliament on such a critical issue weakens Karnataka’s bargaining power, and ultimately hurts our people. This is not about party politics, but about standing up for Karnataka’s rightful share and future development.
In many centrally sponsored schemes, states need to pay more.
That is one of our core concerns. Over the years, the financial burden of centrally sponsored schemes has increasingly been shifted on to states, though states implement these programmes on the ground. While the Centre designs the schemes and takes credit, states are compelled to commit a larger share of funds, often stretching already tight budgets.
This limits our fiscal flexibility and affects our ability to invest in state-specific priorities. Cooperative federalism cannot mean cost centralisation and responsibility decentralisation. For India to grow sustainably, states must be treated as equal partners, with adequate resources and genuine autonomy to deliver development that responds to local needs.
About GST cess, you have said there is no amount coming to the state and no GST compensation since 2022.
Yes, that is correct. Since the end of the GST compensation period in June 2022, states have not received any compensation for revenue shortfalls, even as the Centre continues to levy various cesses and surcharges kept outside the divisible pool. These GST-related cesses do not flow to states at all, despite GST being a shared tax and states having surrendered their fiscal autonomy in national interest. Karnataka, like many other states, continues to face revenue pressure due to rate rationalisation decisions taken at the national level, but the burden of adjustment is borne almost entirely by states. This goes against the spirit of cooperative federalism. If states are expected to deliver growth and welfare on the ground, they must be ensured a fair share of revenue.
In 2016-17, when GST was introduced, they said 14 per cent was assured to states, and there was a shortfall of Rs 20,000 crore then.
When GST was introduced in 2016-17, states were assured 14 per cent annual growth in revenue to compensate for taxes they surrendered in national interest. Karnataka agreed to GST in good faith, on this assurance. Yet, even in the early years, there was a substantial shortfall, and Karnataka alone faced a revenue gap of nearly Rs 20,000 crore. While compensation was provided during the assured period, the structure of GST itself, along with frequent rate reductions and exemptions, continued to erode state revenues. After June 2022, the GST compensation mechanism came to an abrupt end, leaving states without any protection against revenue loss.
The Centre continues to levy GST-related cesses and surcharges, which are kept outside the divisible pool and do not flow to states. This has resulted in a situation where states have lost fiscal autonomy but have not received assured fiscal stability. If GST is truly a shared tax, then both risks and revenues must be shared fairly, otherwise cooperative federalism becomes a one-sided arrangement.
When you contemplated the guarantee schemes, did you factor in these challenges?
Yes, we were fully conscious of these fiscal challenges when we designed our guarantee schemes. Our decisions were not impulsive; they were based on careful financial planning, prioritisation, and a clear understanding of Karnataka’s social realities. The guarantees are investments in human capital, nutrition, education, mobility and income security, which directly strengthen productivity and inclusive growth. We have managed our finances responsibly, without compromising fiscal discipline. What we are pointing out is not an inability to govern, but an imbalance in the federal fiscal framework. States like Karnataka are delivering welfare, growth and stability despite shrinking fiscal space, and that itself demonstrates our commitment to both social justice and sound economic management.