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State Revenues Set to Surge: CRISIL Predicts 8-10% Growth Driven by GST and Central Devolutions

March 21, 2025
Smart Money

Revenues of Top 18 Indian States Projected to Grow 8-10% This Financial Year, Says CRISIL

A recent report by CRISIL Ratings has revealed that the revenues of India’s top 18 states, which together account for a significant 90% of the country’s Gross State Domestic Product (GSDP), are anticipated to grow between 8% and 10% in the current financial year. This growth is projected to culminate in a cumulative revenue of approximately ₹38 lakh crore.

Key Drivers of Revenue Growth

The robust growth in state revenues is primarily attributed to strong Goods and Services Tax (GST) collections and an expected increase in central tax devolutions. According to the report, central tax devolutions are projected to rise by 12% to 13% in the current financial year, serving as a crucial catalyst for revenue enhancement.

Anuj Sethi, Senior Director of CRISIL Ratings, emphasized that the principal driver of this growth will be the aggregate state GST collections. He noted that improvements in tax compliance and an increased degree of formalisation in the economy are likely to further boost revenues.

Stability in Liquor Revenues

While the report indicates a stable outlook for revenue generated from liquor sales—which contributes approximately 10% to the total state revenues—other sources like sales tax on petroleum products and grants recommended by the 15th Finance Commission are expected to show only modest performance.

Grants and Financial Devolutions

In addition to tax collections, CRISIL Ratings forecasts a growth of 4% to 5% in grants from the central government, aligning with the budgetary outlays for the financial year. These grants, combined with the projected increase in devolutions, are set to play a significant role in supporting state finances.

Economic Context

The report’s findings are based on an assumed real GDP growth forecast of 6.8% for the current financial year. Importantly, CRISIL highlighted that for states to achieve sustainable revenue growth, there is a pressing need to focus on expanding their own revenue-generating capabilities and improving collection efficiencies.

Conclusion

As states prepare to navigate the complex fiscal landscape of the upcoming financial year, the anticipated growth in revenues heralds a positive outlook. With state governments positioned to benefit from increased GST collections and central financial support, stakeholders will be keenly observing how these dynamics unfold.

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