Revenue of 18 large Indian states, which account for more than 90% of the country’s gross state domestic product, is expected to grow 9%-11% year-on-year and cross ₹44 lakh crore in fiscal 2027, accelerating from an estimated 8% growth last fiscal, according to Crisil Ratings.
The improvement is expected to be driven mainly by higher collections from the goods and services tax, or GST, and larger tax transfers from the Centre. Growth in several other revenue sources is likely to remain moderate.
Taxes collected directly by states account for a little over half of their total revenue receipts. GST makes up around 40%-45% of those state-collected taxes, while taxes on liquor and petroleum products are other major sources. States also receive a share of taxes collected by the Centre, which accounts for nearly a third of their revenue receipts. Grants and non-tax revenue contribute about 9% each.
GST to lead revenue growth
GST is expected to remain the biggest driver of state revenue growth, with collections projected to rise 12%-13% in fiscal 2027, Crisil said.
The increase is expected to be supported by domestic consumption as well as taxes collected on imports. Import-related GST, known as integrated GST or IGST, contributes roughly a quarter of the overall GST pool, with the rest coming from domestic supplies.
“GST revenue growth is expected to remain healthy despite geopolitical uncertainty,” an tax expert said.
Higher commodity prices, a weaker rupee and stable import volumes should support GST collections from imports, he said. The GST 2.0 changes introduced in September 2025 are also expected to improve the responsiveness of tax collections to economic growth.
The momentum is already visible in the current fiscal year. State GST collections rose 16% year-on-year in the five months through August 31, 2026, helped by nearly 30% growth in IGST collections from imports of electronics, machinery, gold, fertilisers and other key goods.
The pace is expected to moderate later in the fiscal year as commodity prices stabilise and currency volatility eases.
Liquor and fuel taxes to grow more slowly
Revenue from liquor sales is expected to rise 7%-8%, supported by steady consumption and periodic increases in duties and fees.
Petroleum-tax revenue is projected to grow 4%-5%, driven mainly by higher fuel volumes and pump prices. States have so far largely refrained from cutting fuel-tax rates despite higher retail prices.
Crisil said any tax cuts in response to a further rise in crude oil and retail fuel prices will need to be monitored.
Other taxes collected directly by states, led by stamp-duty revenue, are expected to grow 6%-7% from a high base as growth in the real-estate sector moderates.
Overall, states’ own-tax revenue is expected to increase 9%-10% this fiscal, with GST providing the main boost.
Higher tax transfers from Centre to provide another boost
Tax transfers from the Centre are expected to be the second major source of revenue growth.
States receive 41% of the pool of central taxes that is shared with them. Personal income tax is the largest component of this pool, followed by corporate tax and the Centre’s GST collections.
Crisil expects these tax transfers to grow 11%-12%, helped by a recovery in personal income-tax collections from the low base created by last year’s tax-slab changes. Stronger nominal economic growth should also support collections of indirect taxes.
“A double-digit increase in tax devolution will complement the GST-led improvement in state revenues,” another tax expert said.
Higher transfers that states can spend with relatively few restrictions should give them more flexibility in managing their finances, he said. The benefit, however, will vary depending on each state’s revenue mix and spending commitments.
Grants and mining royalties to add to growth
Revenue from grants is expected to rise 6%-7% this fiscal, supported by higher allocations for urban and rural local bodies under the 16th Finance Commission framework, subject to performance-related conditions. Funding for some major central government schemes is also expected to increase.
Non-tax revenue, driven largely by royalties from mining, is projected to grow 9%-10%, helped by stable mineral production, firmer prices and continued auctions of mineral blocks.
The improvement will not be uniform across states, Crisil said. The extent of the increase will depend on each state’s mix of revenue sources, the strength of tax collections and whether states meet conditions attached to some grants.
The projections assume India’s nominal GDP will grow around 13% in fiscal 2027, compared with about 8.9% in the previous fiscal.
Global uncertainty, changes in consumer spending, inflation pressures and states’ ability to meet grant-related conditions remain key factors to watch, Crisil said.
Sustaining revenue growth beyond the current cyclical improvement will require states to widen their tax base, improve compliance and make tax collection more efficient.
