News

Steady Revenue Growth for India’s Top States: CRISIL Predicts 8-10% Increase Driven by GST and Central Devolutions

February 9, 2025
Smart Money

Revenues of Top 18 Indian States Projected to Grow by 8-10% in Current Financial Year

According to a recent report by CRISIL Ratings, the revenues of the top 18 Indian states, responsible for approximately 90 percent of the country’s Gross State Domestic Product (GSDP), are anticipated to grow by 8 to 10 percent in the ongoing financial year, amounting to around ₹38 lakh crore. This projection marks a notable increase from the previous fiscal year’s revenue growth of 7 percent.

Key Drivers of Revenue Growth

The report highlights several critical factors contributing to this revenue growth. Central to this increase are robust Goods and Services Tax (GST) collections and significant financial devolution from the central government. These two components together account for nearly 50 percent of the total revenues received by the states.

Anuj Sethi, Senior Director at CRISIL Ratings, emphasized that the primary driver of revenue growth will be the aggregate collections from state GST. Improved tax compliance and the increasing formalization of the economy are also expected to play crucial roles in enhancing revenue streams.

Expectations for Specific Revenue Sources

The report outlines specific projections for various revenue sources. It suggests that revenues derived from liquor sales, which contribute approximately 10 percent of total state revenues, are expected to remain stable. However, collections from sales tax on petroleum products and the grants allocated under the 15th Finance Commission are anticipated to be modest.

In terms of central tax devolutions, CRISIL forecasts a growth rate of 12 to 13 percent for the current financial year, marking it as a significant contributor to the revenue landscape. Furthermore, grants provided by the central government are projected to increase by 4 to 5 percent, aligning with the overall Budget outlay.

Outlook and Recommendations

CRISIL Ratings based its analysis on a real GDP growth forecast of 6.8 percent for the current financial year. To achieve sustainable revenue growth, the report stresses the need for states to focus on expanding their own revenue sources and enhancing collection efficiencies. The emphasis on improving local revenue mechanisms is crucial for states to maintain financial health in the long term.

In summary, the financial outlook for the top 18 states in India appears promising for the current fiscal year, driven largely by strong GST collections and central tax devolution. As these states navigate their revenue pathways, focusing on efficient collection practices will be essential in securing future growth.

Stay informed on the latest developments by following our updates on financial growth and economic trends.