Will 18 Indian States See 7-9% Revenue Growth This Fiscal?
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Synopsis
A recent report indicates that India's 18 major states are poised for a significant revenue growth of 7-9% this fiscal year. This anticipated increase, reaching Rs 40 lakh crore, stems from stable GST collections and recovering grants, highlighting a positive economic outlook despite potential challenges.
Key Takeaways
- Projected Revenue Growth: 7-9% increase in revenue.
- Total Revenue Target: Rs 40 lakh crore this fiscal.
- Key Drivers: Steady GST collections and recovering grants.
- Tax Revenue Growth: SOTR expected to rise by 8%.
- Consumption Factors: Liquor sales projected to grow by 9-10%.
New Delhi, July 29 (NationPress) The revenue growth of India’s 18 major states, which contribute over 90 percent of the gross state domestic product, is projected to experience an increase of 7-9 percent this fiscal year, reaching Rs 40 lakh crore. This marks a rise from 6.6 percent in the previous fiscal, according to a report released on Tuesday.
According to Crisil Ratings, this growth will be bolstered by expectations of consistent GST collections and devolution of funds from the Centre. Additionally, grants are anticipated to recover during fiscal 2026, following a decline in the last fiscal year.
States generate revenue through two primary streams: the states’ revenue (SOR) and transfers from the Centre. SOR mainly comprises the state’s tax revenue (SOTR), which includes goods and services tax (GST), as well as taxes on liquor and petroleum.
The report indicates that SOTR is expected to grow by 8 percent this fiscal year, primarily driven by increases in GST and liquor tax, along with modest growth from petroleum tax.
GST collections are set to be the key driver for state taxes, with an anticipated on-year growth of 9-10 percent for this fiscal, slightly lower than last year's figures. Sustained GST collections are expected, given an anticipated nominal GDP growth of approximately 9 percent, as stated by Anuj Sethi, Senior Director at Crisil Ratings.
While enhanced tax compliance and a shift in economic activities from the unorganised to the organised sectors are likely to support GST revenue, concerns over subdued domestic consumption and inflation could pose risks, he noted.
Revenue from liquor sales is projected to experience stable growth of 9-10 percent year-over-year, following a growth rate of 9.6 percent last fiscal year. This growth will be fueled by two factors: rising consumption leading to a volume increase of 5-6 percent and states implementing higher excise duties, as highlighted in the report.
Revenue from sales taxes on petroleum products is also expected to grow by about 2 percent year-over-year this fiscal.
Conversely, grants from the Centre are projected to recover and grow by 3-4 percent due to increased allocations for centrally sponsored schemes (CSS) and Finance Commission grants to both urban and rural local bodies, as suggested by the budget estimates of central and state governments for fiscal 2026, according to the report.
Point of View
I believe this report provides a hopeful outlook for India's fiscal landscape. The projected revenue growth reflects resilience and recovery in key states, showcasing their potential to drive national economic progress. However, we must remain cautious of underlying risks that could impact these projections. We will continue to monitor these developments closely.
NationPress
30/07/2025
Frequently Asked Questions
What is the expected revenue growth for India's major states?
India's 18 largest states are expected to see a revenue growth of 7-9% this fiscal year.
What factors are contributing to this growth?
The growth is primarily supported by steady GST collections and recovering grants from the Centre.
How much revenue are these states projected to generate?
The total revenue for these states is anticipated to reach Rs 40 lakh crore.
What challenges could affect revenue growth?
Subdued domestic consumption and inflation may pose downside risks to the expected revenue growth.
When is the expected recovery in grants from the Centre?
Grants from the Centre are expected to recover and grow by 3-4% during fiscal 2026.
