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Booming Revenues: Top 18 Indian States Project 8-10% Growth This Financial Year Driven by GST and Central Transfers

February 20, 2025
Smart Money

Revenue Growth of Top 18 Indian States Projected at 8-10% for the Current Financial Year

Kolkata, India – July 3, 2024

A recent report by CRISIL Ratings has projected that the revenues of the top 18 Indian states, which account for a significant 90% of the country’s gross state domestic product (GSDP), are expected to grow between 8% to 10% during the current financial year. This growth is anticipated to reach approximately ₹38 lakh crore.

Drivers of Revenue Growth

The forecasted revenue increase is primarily attributed to robust Goods and Services Tax (GST) collections and the devolution of finances from the Central Government. According to the CRISIL report, these devolved funds make up around 50% of the total revenues generated by the states.

Anuj Sethi, Senior Director at CRISIL Ratings, highlighted that the largest contributor to this growth will continue to be GST collections. Enhanced tax compliance and a growing formal economy are also crucial factors aiding in revenue expansion. The report notes that, in the previous fiscal year, revenues from these 18 states experienced a growth of 7%.

Insights into Revenue Sources

While the revenue derived from liquor sales, which constitutes approximately 10% of state revenues, is expected to remain stable, the report anticipates only modest growth in collections from sales tax on petroleum products. Additionally, the grants proposed by the 15th Finance Commission will not see significant increases.

The report also forecasts that central tax devolutions will rise by 12% to 13% this financial year, further bolstering the states’ revenue capabilities. Meanwhile, grants from the Centre are expected to grow by a modest 4% to 5%, in alignment with the government’s Budget outlay.

Broader Economic Context

The CRISIL Ratings report operates on the premise of a real GDP growth forecast of 6.8% for the current financial year, which is a crucial indicator for assessing overall economic performance. To achieve sustainable growth in revenue, states must focus on enhancing their own revenue streams and improving collection efficiencies.

This uptick in state revenues could play a significant role in facilitating local economic development, financial stability, and enhanced public services across India.

Conclusion

As the fiscal year progresses, the financial landscape for India’s top states seems poised for growth, influenced by key economic factors such as GST collections and central financial allocations. Balancing this growth with measures to expand self-generated revenues will be essential for sustainable development in the coming year.

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