Revenues of top 18 Indian states to grow 8 to 10% this fiscal: CRISIL

According to a report by CRISIL, the top 18 states in India are likely to achieve record revenue growth from 8 to 10% in the fiscal year 2025.

Gross domestic product (GDP) revenue growth was 7.5% last year. This year’s anticipated growth will be due to a rise in state revenue, healthy GST collections, and central tax devolution.

Central tax devolution is the process by which the central government allocates a share of the taxes it collects to state governments.

Interestingly, revenue from these leading 18 states constitutes more than 90% of India's gross domestic product.

The 18 states include Maharashtra, Gujarat, Tamil Nadu, Karnataka, Telangana, Uttar Pradesh, West Bengal, Rajasthan, Madhya Pradesh, Andhra Pradesh, Odisha, Kerala, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand and Goa.

Top 3 state revenue sources

Three of the state government's top revenue sources include GST, petroleum, and liquor tax. The report mentions that the government’s income from GST is likely to surge by 13-14%, liquor tax is expected to grow 5-7%, and revenue from petroleum tax might go up by 3-4%.

“The biggest impetus to revenue growth will continue to come from aggregate state GST collections that, after growing ~18% year-on-year, will climb up another 13-14% 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 unorganized to the organized sectors, leading to greater formalisation of the economy," he added.

The market analytics firm also noted that the projected growth will fluctuate with global economic volatility impacting India. As the central tax devolution is expected to increase by 12-13%, the firm advised states to focus on boosting their revenue and improving tax collection efficiency.

On the other hand, Moody’s ratings predict that the Indian economy will grow by 6.6% in the current financial year. The Reserve Bank of India (RBI) has increased its real GDP growth forecast for FY 2024–25 to 7.2% from 7%.

The Union Budget for FY2025 will be tabled this month by Finance Minister Nirmala Sitharaman.