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Economic Outlook: Top 18 States Poised for 8-10% Revenue Growth Driven by GST and Central Grants

February 13, 2025
Smart Money

Revenue Projections for Top 18 Indian States Expected to Rise 8-10% in Current Financial Year

Kolkata – A recent report by CRISIL Ratings indicates that the revenues of the top 18 states in India, which collectively contribute to 90% of the country’s gross state domestic product (GSDP), are projected to grow between 8% and 10% during the current financial year. This growth is expected to push total revenues to approximately ₹38 lakh crore.

Key Drivers of Revenue Growth

The increase in state revenues will be primarily attributed to robust collections from the Goods and Services Tax (GST) and the financial devolution from the central government, which represents about 50% of the total revenue generated by these states. The report noted that the previous financial year saw a revenue growth of 7% for these states, underscoring a positive trend.

Anuj Sethi, Senior Director at CRISIL Ratings, emphasized that the greatest impetus for revenue growth will continue to stem from Aggregate State GST collections. He also highlighted the critical role of improved tax compliance and the ongoing formalization of the Indian economy as important factors contributing to this growth.

Performance of Different Revenue Streams

The financial landscape across these states indicates stability in liquor sales, which make up about 10% of overall state revenues. However, the growth in collections from sales tax on petroleum products is projected to be modest, while grants from the 15th Finance Commission are anticipated to have only a mild impact.

In addition to these factors, central tax devolution is expected to see a significant increase of 12% to 13% in the current financial year. This will serve as another substantial driver for the revenue growth observed among the top states.

Future Considerations for Sustainable Growth

The report also details that grants from the central government are set to rise by 4% to 5%, aligning with budgetary allocations. CRISIL Ratings has based these calculations on a forecast for real GDP growth of 6.8% for the current financial year.

While the projected growth in state revenues is promising, the report emphasizes that states need to concentrate on expanding their own revenue sources and enhancing collection efficiencies to ensure long-term sustainability in revenue growth.

As the financial year progresses, the focus will be on maintaining this trajectory of growth amidst evolving economic conditions, with state governments encouraged to adapt their strategies accordingly.

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