Revenue growth of India’s 18 largest states is projected to rise marginally to 7–9% in FY26, reaching Rs 40 lakh crore, compared with 6.6% in the previous year, according to a report by Crisil Ratings. These states collectively account for over 90% of the country’s gross state domestic product (GSDP).
The uptick is expected to be driven by steady Goods and Services Tax (GST) collections, robust tax devolutions from the Centre, and a recovery in grant transfers after a contraction last year, ANI reported.
States draw their revenues from two main streams: own revenue sources (SOR), including GST, liquor and petroleum taxes; and transfers from the Centre, comprising tax devolutions and grants. Crisil estimates that states’ own tax revenue (SOTR) will grow by 8% this fiscal, with GST and liquor taxes being key contributors.
“GST collections remain the driver for states’ own taxes, with one-year growth projected at 9–10% for this fiscal, marginally lower than the last,” said Senior Director at Crisil Ratings. He noted that expected nominal GDP growth of 9% would support GST receipts, although subdued domestic consumption and inflation may pose downside risks.
Liquor tax revenue is also expected to see a stable 9–10% rise, similar to the 9.6% growth recorded in FY25. This will be fuelled by a 5–6% rise in consumption volumes and hikes in excise duty by several states.
Meanwhile, petroleum-related tax revenue is expected to grow by just 2%—in line with last year—due largely to static tax rates and only marginal increases in fuel consumption.
On central transfers, tax devolutions are forecast to grow 11–12% this fiscal, after clocking nearly 14% in FY25. “Rising gross tax collections, supported by growth in income tax and GST collections, remain a key driver,” said Director, Crisil Ratings.
Grants from the Centre are also likely to recover with a projected 3–4% rise, aided by increased allocations for centrally sponsored schemes (CSS) and Finance Commission grants to local bodies, as reflected in budget estimates for FY26.
Last fiscal, grants fell 10% due to lower transfers under CSS, amid subdued capital expenditure by state governments, the report noted.
Source #TOI
