Karnataka must slash developmental spending across the board to fund the ambitious Upper Krishna Project (UKP), the finance department has warned in an internal note reviewed by DH. The advice underscores the state’s deepening fiscal stress, with serious implications for key sectors such as education, healthcare, and urban development.

₹75,000 crore needed over four years

The UKP will require an additional expenditure of ₹75,000 crore over the next four years, translating to about ₹18,000 crore annually. This is largely due to revised compensation rates approved by the Cabinet for acquiring 1.33 lakh acres of land.

To meet this obligation, the finance department has proposed cutting 20% from the state’s developmental outlay of ₹80,197 crore (excluding ‘guarantee’ schemes and committed expenditure). Such a reduction would free up around ₹16,039 crore annually.

If department-wise allocations are left untouched, the note suggests scaling back flagship guarantee schemes and subsidies for irrigation pump sets to unlock about ₹15,000 crore. Currently, the government is spending ₹51,034 crore this year on the guarantees.

What the UKP entails

The project involves raising the height of the Almatti Dam to irrigate nearly 5.94 lakh hectares across Vijayapura, Bagalkot, Raichur, Kalaburagi, Yadgir, Koppal, and Gadag districts — making it critical for north Karnataka’s agrarian economy.

Fiscal stress mounting

The note paints a grim picture of the state’s finances:

  • A ₹22,000 crore revenue shortfall is projected this fiscal against estimated receipts of ₹2.92 lakh crore.
  • In the first five months alone, the state fell short by ₹7,413 crore.
  • Karnataka is also expected to lose ₹6,000 crore due to GST rationalisation and ₹3,000 crore in mining tax revenue, pending presidential assent for enabling legislation.

The department has ruled out fresh tax hikes in 2025-26, citing recent upward revisions.

Borrowing limit reached

Chief Minister Siddaramaiah plans to borrow ₹1.16 lakh crore in 2025-26 — the maximum permissible. Any further borrowing would breach fiscal responsibility norms by pushing the fiscal deficit above 3% (currently 2.95%) and liabilities beyond 25% of GSDP (now 24.91%). The department warned that this stressed situation will persist for the next four years.

Political fallout

The Congress government is already facing attacks from the BJP over mounting fund shortages. The opposition has accused the Siddaramaiah administration of fiscal mismanagement while committing heavily to populist guarantees.