Karnataka cities get just 15% of promised SFC grants, denied fiscal autonomy, says report

Bengaluru: Karnataka's city and town governments received only Rs 4,972 crore against a promised Rs 34,052 crore in State Finance Commission (SFC) grants for FY 2026-27, said non-profit Janaagraha report.

The gap was flagged by Janaagraha in its analysis of the 5th State Finance Commission report.

Nearly one in every two Karnataka residents now live in urban areas. Yet cities and towns have less financial autonomy, less flexible funding, and fewer resources to deliver basic services, the report said.


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About one-third of the funds meant for local governments have been diverted to state welfare schemes such as Anna Bhagya and Gruha Lakshmi. Another Rs 8,023 crore meant for urban local governments went to parastatal agencies instead - a move the report said goes against the advice of the CAG and previous State Finance Commissions.

"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 Greater Bengaluru Authority (GBA), are overdue," said, senior advisor (policy engagement) at Janaagraha Santosh Nargund, "If the chief minister's vision of building more Bengaluru’s beyond Bengaluru is to become a reality, Karnataka must urgently restore meaningful fiscal and democratic decentralisation to its city governments."

The Commission had recommended that 60% of state revenues go to local governments, the highest share yet. Of this, 25% was earmarked for urban areas (Rs 34,052 crore per year) and 75% for rural areas. The report further said that this 25% urban share is well below the state's actual urbanisation level of 46%.

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Karnataka now ranks last among comparable states in per-capita SFC grants to cities, at Rs 2,244, against Kerala's Rs 6,251. The gap has widened over the past decade, state's per-capita grants rose only marginally, from Rs 1,791 to Rs 2,244, while other states more than doubled theirs, report said.

Smaller towns, which depend more heavily on these grants for basic services like footpaths, streetlights and parks, are the worst hit, added the report.