Karnataka ranks last among peer states in per capita urban grants, report says

Karnataka ranks last among comparable states in per capita State Finance Commission (SFC) grants to cities, according to a report by Janaagraha Centre for Citizenship and Democracy titled 'A Story of Reversal of Karnataka’s Fiscal Decentralisation'. The report compares Karnataka’s per capita allocation with that of its peer states, noting that Kerala’s per capita SFC grant to urban residents in 2026-27 is ₹6,251, while Karnataka’s is only ₹2,244.

“Karnataka once led India in devolving funds and powers to local governments. However, its recent decisions point in the opposite direction. The 5th State Finance Commission submitted its report in November 2025 for the award period from FY 2026-27 to FY 2029-30,” the report said.

It further stated that peer states such as Tamil Nadu and Odisha have more than doubled these grants over the eight years since 2018-19. Per capita urban grants in Tamil Nadu and Odisha increased by 203% and 214%, respectively, while Karnataka’s rose by only 25%, with no growth in the last three years. This comes despite Karnataka’s urban population accounting for 46% of the state’s total population, a figure projected to rise to 51% by 2036, according to the analysis.

The report indicates that Karnataka’s stagnation in fund allocation has left its cities under stress, forcing average citizens to grapple with poor roads, garbage accumulation, and drainage and water supply issues, among other challenges.

Emphasising the total funds reaching urban local governments for development, the report states: “The 5th State Finance Commission recommended a bold package but fell short of giving urban areas their due share. The commission recommended that 60% of the state’s revenue be devolved to local governments (LGs), the highest share so far. Of this, 25% was allocated to urban areas and 75% to rural areas. The urban share is significantly lower than the current urbanisation level of 46%.

“However, on paper, the state government accepted only 50% devolution of state revenues to local governments, of which 30% will be allocated to urban areas. Ultimately, only ₹4,972 crore reaches city governments.”

With SFC grants hollowed out, Karnataka’s cities are critically dependent on XVI Finance Commission grants, said Janaagraha. The XVI Finance Commission has put ₹18,483 crore on the table for Karnataka’s cities over the next five years. However, the lack of municipal elections threatens even that lifeline for some urban local governments. Across Karnataka, 13 of the 18 city corporations, including all five under the new Greater Bengaluru Authority (GBA), are functioning without an elected council.

Santosh Nargund, Senior Advisor (Policy Engagement) at Janaagraha, said, “Once regarded as a pioneer in decentralised local governance, Karnataka is slipping. The allocation to city governments in the state’s revenues has remained stagnant for years, while elections to over 200 urban local governments — including the GBA — are overdue. If the Chief Minister’s vision of building ‘more Bengalurus beyond Bengaluru’ is to become a reality, Karnataka must urgently restore meaningful fiscal and democratic decentralisation to its city governments.”

Manisha Marulasiddappa, Senior Manager (Public Finance) at Janaagraha, said unlike other states, Karnataka has not been tabling Action Taken Reports on State Finance Commission recommendations in the assembly, leading to lack of accountability. “It is about time that Karnataka makes this a norm,” she said.