The Indian economic landscape is ever-evolving, with India being the largest emerging market economy. According to a report by Crisil Ratings, major Indian states are poised for modest yet promising revenue growth this fiscal, a positive indicator of the country’s economic health.
Let’s examine the factors likely to boost state revenues and understand how states can leverage higher revenues amid economic uncertainties.
What’s Happening?
A recent report published by Crisil Ratings indicates that the top 18 Indian states, which account for 90% of India’s GDP, are expected to witness 8-10% revenue growth in this fiscal year. The total revenues of these states are estimated to reach Rs 38 lakh crores by the end of FY 2025. Although this growth rate is modest, it is expected to be higher than the 7.5% growth of the last fiscal year. The increase in revenues will be mainly supported by higher GST collections and the devolution of funds from the central government, which together account for nearly 50% of the total state revenues.
Aditya Jhaver, Director, CRISIL Ratings, “Revenue from sales tax on petroleum products will grow a modest 3-4% on-year this fiscal after a flattish last fiscal. This will stem from higher fuel consumption driven by vehicular and industrial activity, even as the tax structure remains largely unchanged. While consumption is expected to grow ~5-6%, cuts in the prices of petrol and diesel undertaken this March will impact growth in sales tax collections by ~200 bps.”
Key Highlights of the Report
The Crisil Ratings report also predicts the trajectory of other state revenue sources as follows:
- Tax revenues from liquor, which account for almost 10% of total earnings, will remain stable and may rise by 5-7% due to increased consumption.
- Sales tax and VAT collections from petroleum products will see a growth of 7-8%.
- Central devolution recommended by the 15th Finance Commission will witness double-digit growth of 12-13%.
What’s Next?
According to Crisil Ratings, real GDP will grow at 6.8% in this fiscal year. Economic volatility can impact revenue forecasts, while higher-than-expected tax revenues or additional central grants can boost state finances. To ensure sustained growth, states must focus on expanding their own revenues and improving collection efficiency.
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*This article is for informational purposes only. This is not investment advice.
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