New Delhi: The pace of growth in the revenue of top 18 large states, which account for over 90 per cent of India’s gross state domestic product, is likely to accelerate to 8-10 per cent in the current financial year from 7.5 per cent recorded in the year ended March 2024, CRISIL Ratings said on Wednesday.
The growth will be primarily supported by healthy Goods and Service Tax (GST) collections and devolution from the Centre, which together comprise around 50% of aggregate state revenues, the rating agency said in a note.
Total revenue of the top 18 large states increased from Rs 32.31 lakh crore in 2022-23 to Rs 34.73 lakh crore in the fiscal ended March 2024. It is estimated to jump to over Rs 38 lakh crore in the current financial year.
State GST revenue collection is estimated to increase by 13-14 per cent in the current financial year. It posted a growth of 18 per cent year-on-year in 2023-24. The central tax devolution is likely to increase by 12-13 per cent.
While the proportion of the devolution is determined by the Finance Commission, the overall kitty is linked to gross tax collections by the centre. This pool, which expanded by 19 per cent year-on-year last fiscal, should grow at a healthy pace this fiscal as well, supported by rising income tax and GST collections.
“The biggest impetus to revenue growth will continue to come from aggregate state GST collections that, after growing 18 per cent on-year last fiscal, will climb up another 13-14 per cent in the current fiscal,” said Anuj Sethi, Senior Director, CRISIL Ratings.
“This will be driven by the resilience of the Indian economy to global turbulence, improving tax compliance, and the shift in economic activity from unorganised to the organised sectors, leading to greater formalisation of the economy,” he added.
Tax garnered from liquor sales is expected to grow 5-7 per cent, primarily due to rising consumption. A majority of the 18 states analysed, barring Karnataka and Kerala, have kept their liquor tax structure unchanged.
States analysed include Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh, Kerala, Odisha, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand and Goa.
Grants from centre to these 18 states is estimated to grow by 4-5 per cent on-year, in line with the Union Budget outlay, including for centrally sponsored schemes and Finance Commission grants which comprises grants towards post-devolution revenue deficits based on the budget calculations and the commission’s own stipulations.
“Revenue from sales tax on petroleum products will grow a modest 3-4 per cent 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,” said Aditya Jhaver, Director, CRISIL Ratings.
The rating agency’s calculations assume a real GDP growth forecast of 6.8 per cent for this fiscal. “Volatility in the global economy and its impact on economic activity can alter the revenue projections,” it said.