Janaagraha Reveals Sharp Shortfall in Karnataka Urban Local Body Funding
An analysis by civic organization Janaagraha has revealed a widening gap and sharp shortfall between recommended funding and actual allocations for urban local bodies in Bengaluru and across Karnataka. The study of the 5th State Finance Commission (SFC) report and the state government’s Action Taken Report shows that urban administrations face mounting strain and weakened fiscal autonomy.
The 5th SFC had proposed that 60 per cent of Karnataka's revenues be transferred to local governments, recommending that 25 per cent of this amount—around Rs 34,052 crore annually—be earmarked for urban local bodies. While the Karnataka government accepted a revised formula to transfer 50 per cent of revenues to local governments (allocating 30 per cent to urban bodies), the actual money earmarked is far lower. For the fiscal year 2026–27, only Rs 4,972 crore has been set aside as SFC grants for urban local bodies.
According to Janaagraha, this massive gap is primarily driven by two factors. Nearly one-third of the funds intended for local governments have been redirected to finance state guarantee schemes, including Anna Bhagya and Gruha Lakshmi. Furthermore, approximately Rs 8,023 crore meant for urban local bodies was allocated to other government agencies, despite objections from earlier SFCs and the Comptroller and Auditor General (CAG).
The analysis also highlighted a steep 87 per cent decline in untied funds, which cities can spend on local priorities. These flexible allocations fell from Rs 988 crore in 2016–17 to just Rs 75 crore in 2026–27, after the state rejected the SFC’s recommendation to keep at least 50 per cent of grants untied.
"The state government has not just cut grants to urban local governments, there is a persistent lack of accountability," said Manisha Marulasiddappa, Senior Manager (Public Finance) at Janaagraha. She noted that Action Taken Reports are rarely tabled in the Assembly, limiting legislators' ability to deliberate on public money allocations.
Additionally, the report warned that cities are increasingly reliant on external grants, such as the Rs 18,483 crore earmarked over five years by the 16th Union Finance Commission. However, access to these central funds is threatened because nearly two-thirds of Karnataka’s 327 urban local bodies, including 13 of the state's 18 city corporations, currently lack elected councils.
Santosh Nargund, Senior Advisor (Policy Engagement) at Janaagraha, stated that if the vision of building "more Bengalurus beyond Bengaluru" is to be realized, the state must urgently restore meaningful fiscal and democratic decentralization to city governments.
