Revenue of states may grow 7-9% this fiscal: Report

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Overall revenue of top 17 states in the country, which account for 85-90% of aggregate gross state domestic product (GSDP), is likely to grow at 7-9% this fiscal, Crisil Ratings said on Wednesday.

The revenue grew 25% last fiscal over a flattish base of FY21 due to a slowdown in the economy caused by the pandemic, the rating agency said in a report.

The report looked into the finances of large state economies including Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana and Rajasthan.

Healthy tax buoyancy will support revenue growth with Goods and Services Tax (GST) collections and devolutions from the Centre together comprising 43-45% of the states’ revenue expected to show robust double-digit growth this fiscal, the report said.

The biggest impetus to revenue growth will come from aggregate state GST collections which had already rebounded by 29% on-year last fiscal, the report said quoting Anuj Sethi, senior director, Crisil Ratings.

“We expect this momentum to sustain and collections to further increase 20% this fiscal, supported by better compliance levels, higher inflationary environment and steady economic growth,” Sethi said in the report.

The share of states in central taxes is expected to grow further. While the proportions are determined by the Finance Commission, the overall kitty is linked with the central government’s gross tax collections, the report said. This pool, which expanded 40% in FY22 to 7.34 trillion, should further grow 15% this fiscal, the report stated.

On the other hand, fuel collections for states from sales tax on motor fuel are expected to remain almost range bound, the report said. That’s because the effects of an expected 25% on-year increase in crude price in the current fiscal and better sales volumes would be offset by the reduction in central excise on petrol and diesel in November 2021 and in May 2022, followed by a reduction in sales tax rates by some states.

Also, various grants provided by the Centre, including grants towards centrally sponsored schemes, Finance Commission grants and revenue deficit, are likely to see only marginal growth this fiscal, based on the budget calculations and Finance Commission stipulations, the report said.

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