Karnataka Budget 2026: Industrialists Seek Stronger MSME Support Amid Fiscal Pressures
As the Siddaramaiah-led Karnataka government prepares to present the state budget for 2026–27 on March 6, industry leaders have outlined a range of expectations focused on strengthening micro, small and medium enterprises (MSMEs), improving infrastructure and managing rising operational costs.
The upcoming budget is expected to reach nearly ₹4.7 lakh crore, reflecting a significant increase in the state’s fiscal outlay. However, economists note that Karnataka faces mounting financial pressures, with overall public debt projected to cross ₹1.3 lakh crore. With revenue expenditure steadily rising, industrialists say the budget must balance welfare spending with measures that stimulate economic growth and industrial competitiveness.
Rising Revenue Expenditure Limits Development Spending
According to estimates, the government is likely to allocate nearly ₹3.45 lakh crore towards revenue expenditure in the next fiscal year, covering routine administrative costs. A large portion of this spending—about ₹1.36 lakh crore—is expected to go toward salaries and pensions for government employees, accounting for almost 40 percent of revenue expenditure.
Since the current administration assumed office in 2023–24, revenue spending has reportedly increased by about 42 percent. Experts warn that this growing burden leaves limited fiscal space for capital expenditure such as infrastructure development and industrial expansion.
In the ongoing fiscal year ending March 2026, Karnataka’s total budget stood at ₹4.09 lakh crore, of which nearly 82 percent was absorbed by revenue expenditure and debt servicing. This left only ₹71,336 crore for capital projects. Additionally, by January 2026, only about 46 percent of the allocated budget had been spent, highlighting challenges in implementation and spending efficiency.
MSMEs Seek Policy Reforms and Dedicated Support
Industrial leaders say the upcoming budget presents an opportunity to address longstanding issues faced by small and micro industries, which are widely regarded as the backbone of employment generation.
Ravikiran Kulkarni, former General Secretary of the Karnataka Small Scale Industries Association, emphasized the need for a focused policy framework.
“Small and micro industries require a separate directorate or ministry because policies designed for medium and large industries often do not suit smaller enterprises,” Kulkarni said. “These sectors employ people across educational backgrounds and play a vital role in job creation.”
Kulkarni highlighted several operational challenges, including high minimum wages compared with neighbouring states, frequent hikes in electricity tariffs and inadequate infrastructure in industrial areas.
“Industries are struggling with repeated power tariff increases and fixed charge revisions every few months. At the same time, many industrial areas still suffer from poor roads and basic infrastructure,” he said.
He also questioned the effectiveness of investment agreements signed by the state. “Despite numerous investment announcements, the actual conversion rate into operational industries is less than 15 percent. The government must examine why investors are not coming forward.”
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Working Capital and Skilled Workforce a Major Concern
Industrialist Afsar Pasha, Immediate Past President of the Muslim Industrialist Association, stressed the need for financial support mechanisms for MSMEs.
“One of the most critical issues for MSMEs is working capital. Businesses often face sudden orders or market fluctuations, and without adequate liquidity, they struggle to meet demand,” Pasha said.
He also raised concerns about the decline of Industrial Training Institutes (ITIs) and the resulting shortage of skilled labour. “Many ITIs have closed in the past decade, and fewer students are enrolling in skill-based education. Reviving these institutions is essential for sustaining the MSME ecosystem.”
Pasha called for power cost regulation and targeted subsidies for smaller industries. He also urged the government to integrate migrant workers more effectively into the local workforce.
“Migrant workers are an essential part of our labour force. There must be structured policies to train them in Kannada and integrate them socially while ensuring workforce stability for industries,” he said.
He further suggested promoting tourism as a revenue-generating sector and introducing regulatory frameworks for the rapidly growing gig economy.
Infrastructure, Technology and Regional Growth
MB Balakrishna, Immediate Past President of the Federation of Karnataka Chambers of Commerce and Industry, said industry leaders expect the government to continue welfare programmes while also prioritising infrastructure and industrial growth.
“We are hopeful that the budget will maintain welfare initiatives but also strengthen infrastructure, agriculture, healthcare and education,” Balakrishna said.
He called for a dedicated MSME policy, easier access to credit and a procurement policy that encourages government departments to purchase from local MSMEs.
“Reducing the cost of doing business is critical. Industrial land prices should be rationalised, and dedicated plots should be reserved for micro and small enterprises,” he said.
Balakrishna also highlighted the importance of technology adoption. “Subsidies for ERP systems, digital transformation and incentives for AI, automation and smart manufacturing can significantly enhance competitiveness,” he added.
Industry Looks for Balanced Budget
With fiscal constraints tightening, industrial leaders say the upcoming budget must strike a careful balance between welfare commitments and economic development.
They believe targeted support for MSMEs, infrastructure investment and skill development initiatives will be crucial in sustaining Karnataka’s industrial growth while maintaining financial stability.
