Credit: DH File Photo
New Delhi: Karnataka’s economic growth in the current financial year is likely to be higher than the 6.5 per cent expansion projected in the state’s budget, India Ratings & Research (Ind-Ra) said on Friday.
Karnataka’s 2025-26 budget proposals are based on the growth assumption of 6.5 per cent over the revised estimates of FY25 of the nominal gross state domestic product (GSDP).
Ind-Ra said in a note that the projected growth in the state budget is an underestimate, and Karnataka’s actual nominal economic growth is likely to be around 11.5 per cent in the current financial year.
The state’s nominal GSDP growth was 12.8% in the financial year ended March 2025 as per the revised estimate. Given the average nominal GSDP growth of 11.6% during FY19-FY24, Ind-Ra assumes the nominal GSDP growth rate would be 11.5% for the state government’s FY26 budget.
“Assuming an economic growth rate of 11.5%, compared to the FY26 budget estimate (BE) of 6.5%, the fiscal deficit is likely to align closely with BE, and the debt burden could be somewhat lower than BE (24.9%) in FY26,” said Anuradha Basumatari, Director, Public Finance, Ind-Ra.
Karnataka’s revenue deficit as per FY25 RE came in at Rs 26,130 crore (0.9% of GSDP) compared to the FY25 budget estimate (BE) of Rs 27,350 billion (1.0% of GSDP). This was on account of lower-than-budgeted revenue expenditure of Rs 2,83,930 crore as per FY25 RE (FY25 budget estimate: INR2,905.3 billion).
The nominal GSDP growth was marginally higher at 12.7% in FY25 than the projected 12.3% in FY25 BE that resulted in marginally better-than-budgeted deficit ratios.
The state’s revenue receipts and expenditure are budgeted to grow 13.5% and 9.8%, respectively in FY26 over the previous year.
The state relies heavily on its own tax revenue collection (70% share in revenue receipts in FY25 RE), which is budgeted to grow 15.4% year-on-year in FY26. Karnataka is likely to meet its tax revenue collection Rs 2.08 lakh crore for the current financial year as projected in the budget, Ind-Ra said.
Expenditure on “guarantees” extended by the state government grew 15.4% to around Rs 44,250 crore in FY24. Including guarantees in state debt, the combined liabilities of the state was 25.3% of GSDP in FY24 against 24.2% in the previous year. It is likely to narrow to 23.8% in FY25 as per the revised budget estimate.