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The revenues of India’s top 18 states, which together contribute to over 90% of the nation’s gross state domestic product (GSDP), are projected to increase by 8-10% during the current fiscal year, reaching ₹38 lakh crore, according to a recent report by CRISIL Ratings.
Last fiscal year, these states saw a revenue growth of 7%, highlighting a consistent upward trend.
Primary Revenue Drivers
The report attributes this anticipated growth to strong Goods and Services Tax (GST) collections and financial devolution from the central government. These two factors constitute approximately 50% of the aggregate state revenues.
“During April-June 2024 (Q1 FY25), gross GST collection stood at ₹5.57 trillion, up from ₹5.06 trillion a year ago,” the report noted.
Stable Liquor Sales Revenue
CRISIL expects revenue from liquor sales, which accounts for 10% of total revenue, to remain stable. Additionally, sales tax collections from petroleum products are projected to grow by 7-8%.
Finance Commission Grants
Grants recommended by the Fifteenth Finance Commission, accounting for 10-11% of revenues, are anticipated to be modest.
“This pool, which expanded by about 19% on-year last fiscal, should grow at a healthy pace this fiscal as well, supported by rising income tax and GST collections,” CRISIL stated.
Expert Insights
Anuj Sethi, Senior Director at CRISIL Ratings, emphasized the critical role of GST collections and enhanced tax compliance in driving revenue growth. “The biggest impetus to revenue growth will continue to come from aggregate state GST collections and improved tax compliance,” he said.
Forecast and Economic Factors
Central tax devolutions are expected to grow by 12-13% this fiscal year, providing a significant boost. Meanwhile, grants from the Centre are projected to increase by 4-5%, aligning with the Budget outlay.
CRISIL’s calculations are based on a real GDP growth forecast of 6.8% for this fiscal year. The agency warns, however, that global economic volatility could impact these revenue projections.
Petroleum Product Sales Tax
“Revenue from sales tax on petroleum products will grow a modest 3-4% on-year this fiscal after a flattish last fiscal,” noted Aditya Jhaver, Director at CRISIL Ratings. “This will stem from higher fuel consumption driven by vehicular and industrial activity.”
While the outlook remains positive, CRISIL underscores the importance of states focusing on expanding their own revenue sources and improving collection efficiencies to sustain this growth trajectory.
The report also highlights the potential for better-than-expected tax buoyancy or additional central grants to further bolster state revenues.
