Revenue of the major States is likely to grow at a moderate pace of 7-9 per cent this financial year, after galloping 25 per cent last year, said rating agency CRISIL Ratings in a report.
This estimate considered India’s top 17 states, which account for 85-90 per cent of aggregate gross state domestic product. “Last fiscal growth was however on a flattish base of fiscal 2021, due to slowdown in the economy, caused by the pandemic,” it said.
Healthy tax collections will support revenue growth, with Goods and Services Tax (GST) collections and devolutions payments from the Centre — together comprising 43-45 per cent of the states’ revenue — expected to show robust double-digit growth this fiscal, the rating agency said.
“The biggest impetus to revenue growth will come from aggregate state GST collections which had already rebounded 29 per cent on-year last fiscal,” said Anuj Sethi, Senior Director at CRISIL Ratings.
“We expect this momentum to sustain and collections to further increase 20 per cent this fiscal, supported by better compliance levels, higher inflationary environment and steady economic growth.”
Besides, the report said the share of states in central taxes is also expected to grow further.
On the other hand, fuel collections for states from sales tax on motor fuel are expected to remain almost range bound – meaning largely steady.
The effects of an expected 25 per cent yearly 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 May 2022, followed by a reduction in sales tax rates by some states.