Bengaluru requires Rs 55,586 crore investment over next five years: Karnataka CM to 16th Finance Commission

Siddaramaiah on August 29 met with Arvind Panagariya, Chairman of the 16th Finance Commission, and its members

Karnataka Chief Minister Siddaramaiah told the 16th Finance Commission on August 29 that Bengaluru needs investments worth Rs 55,586 crore over the next five years.

Siddaramaiah was speaking at a meeting with Arvind Panagariya, the Chairman of the 16th Finance Commission, and its members.

The Chief Minister sought a grant of Rs 27,793 crore from the Finance Commission for Bengaluru’s development.

In his Independence Day speech, Siddaramaiah said his government will undertake long-term infrastructure development plans for Bengaluru through an innovative integrated financial model at Rs 48,686 crore under Brand Bengaluru.

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Citizens in tech and startup Bengaluru have been complaining about poor infrastructure. "The state faces regional imbalances, especially in the Kalyana Karnataka region, along with challenges posed by urbanisation. These require greater devolution by the Centre," he said.

Siddaramaiah also sought funds for the Kalyana Karnataka region, highlighting the need for equitable development. "The state is investing Rs 25,000 crore in the Kalyana Karnataka region and requests a matching grant of Rs 25,000 crore over five years from the 16th Finance Commission," he said.

The Karnataka CM also sought a grant of Rs 10,000 crore to support disaster mitigation and relief efforts in the Western Ghats, a region highly vulnerable to natural disasters.

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Siddaramaiah urged the Finance Commission to address both vertical and horizontal imbalances, keeping in mind the principles of equity and efficiency. He urged the commission to recommend that vertical devolution is at least 50 percent of the divisible pool. He also proposed capping cesses and surcharges at five percent of gross tax revenue, with anything exceeding that being included in the divisible pool. The Chief Minister ffurther suggested that all non-tax revenues of the Centre be included in the divisible pool of taxes through a necessary constitutional amendment.

"It is understandable that the Constitution provides for the redistribution of tax proceeds among the states. Economically advanced states are committed to supporting poorer states, but this should not come at the expense of their own residents or economic efficiency. A larger proportion of resources generated by the states should be shared with them. The Finance Commission needs to carefully examine the impact of an excessive emphasis on equity on the incentives for well-performing states," he said.

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"Karnataka recommends that 60 percent of a state's contribution to the divisible pool, for inter-se allocation among states, should be returned to that state," Siddaramaiah said, stressing the importance of fiscal federalism as enshrined in the Constitution. "Fiscal federalism is fundamental to promoting 'Cooperative Federalism,' a term our Prime Minister has coined," he said.

The CM expressed concerns over the significant reduction in Karnataka's share of central transfers during the 15th Finance Commission period. "The 15th Finance Commission’s award reduced Karnataka’s share sharply from 4.7% to 3.6%. This has led to a loss of Rs 68,275 crore during the five-year period from 2021-26. The Finance Commission was conscious of the drastic cut Karnataka received and recommended state-specific grants of Rs 11,495 crore. However, the Government of India did not accept the recommendation, depriving Karnataka of these grants. The total loss during the 15th Finance Commission period amounts to Rs 79,770 crore," he said.

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He then highlighted Karnataka's significant role in India's economic growth, pointing out that the state contributes around 8.4 percent to the national GDP, despite having only about 5 percent of the country's population. "The state ranks second in total GST contribution to the country," he said.

Despite Karnataka's substantial contribution of about Rs 4 lakh crore to the Gross Tax Revenue of the Union every year, the state receives only about Rs 45,000 crore in the form of devolution and around Rs 15,000 crore in grant-in-aid. "This means that for every rupee Karnataka contributes, only 15 paise is returned to the state," the CM pointed out.

Siddaramaiah also slammed the Union government's increasing reliance on cesses and surcharges, which are not part of the divisible pool. "This has led to the divisible pool not growing in the same proportion as the Gross Tax Revenue, causing substantial losses to all states. Karnataka, in particular, has lost Rs 53,359 crore due to the non-sharing of cesses and surcharges from the divisible pool during the period 2017-18 to 2024-25," he said.

During the 15th Finance Commission period, the state saw revenue transfer of Rs 35,000-40,000 crore per year to other states, amounting to 1.8 percent of its Gross State Domestic Product (GSDP). Karnataka CM Siddaramaiah said the state suffered losses amounting to Rs 79,770 crore during this time; for every rupee Karnataka contributes, only 15 paise is returned to the state, he added.

"The net transfers outside of Karnataka amount to about 50 to 55 percent of the total revenues it generates. Due to the disproportionate weightage given to equity, Karnataka and similarly placed states end up getting penalised for their good performance, both fiscally and demographically," he said.

Despite the reduction in central transfers, Siddaramaiah assured that Karnataka remains committed to its flagship schemes, including the five guarantees. The state has not compromised on capital expenditure, recognising its high multiplier effect. "Karnataka has maintained its capital expenditure at 2% of its GSDP since 2013-14 and ranks number one in terms of capital expenditure. However, the reduction in central financial transfers is placing severe limitations on the state's ability to invest in physical and human infrastructure. This issue must be addressed urgently," he added.

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