Karnataka Chief Minister Siddaramaiah on Friday met the 16th Finance Commission in Delhi and is learnt to have “highlighted a stark imbalance in fiscal returns”, telling the Commission that “for every rupee Karnataka contributes to Union taxes, it receives only 15 paise in return”.
A statement issued after the meeting by the CM’s office said that “pointed out that the reduction in Karnataka’s share under the 15th Finance Commission from 4.713% to 3.647% resulted in a cumulative loss of over Rs 80,000 crore during the award period”.
The overall share allocated to all states from central taxes was reduced to 41% for 2021-26, as against 42% in the previous cycle, primarily due to the creation of Union Territories of and Kashmir and Ladakh. Siddaramaiah demanded a larger allocation for the state from the central tax pool for the five-year period beginning April 1, 2026.
According to the statement, Karnataka “proposed that the share of taxes devolved to states (vertical devolution) be increased to at least 50% (from April 1, 2026), and that cesses and surcharges be capped at 5%”. “The state also recommended including Union non-tax revenues in the divisible pool.”
“For sharing funds among states (horizontal devolution), Karnataka suggested that each state retain about 60% of what it contributes, with 40% going to less-developed states, ensuring both growth and equity,” it said.
Siddaramaiah told the Commission that “to make the formula fairer, Karnataka has proposed reducing the weight of the income-distance criterion and giving more weight to a state’s economic contribution, so that high-performing states are not penalised, but encouraged,” said the statement.
The state also called for “critical reforms” to make the fiscal devolution system “more growth-oriented, predictable, and fair” and highlighted three “key issues” — the growing disparities in per capita devolution; the flawed design of revenue deficit grants, and the unpredictable nature of state-specific grants.
During the meeting, the CM told the Commission that the state recommends replacing discretionary special grants with a formula-based allocation of 0.3% of Gross Union Receipts.
The CM also sought support for Rs 1.15 lakh crore investment to strengthen ’s infrastructure, given its major role in Karnataka’s economy, said the statement.
