New Delhi [India], July 3 (ANI): Revenue of India’s top states, which account for over 90 per cent of India’s gross state domestic product, is likely to grow at a steady pace of 8-10 per cent this current financial year 2024-25, according to an analysis by rating agency Crisil Ratings.
The rating agency projected that the top states’ revenue will clock towards Rs 38 lakh crore. Last fiscal – 2023-24, the revenue grew at 7.5 per cent.
The growth, according to the rating agency, will be primarily supported by healthy Goods and Service Tax (GST) collections and devolution from the Centre, which together comprise 50 per cent of aggregate state revenues.
While revenue from the tax on liquor sales (10 per cent of total revenue) will remain stable, mid-single-digit growth in sales tax collections from petroleum products (7-8 per cent) and grants recommended by the Fifteenth Finance Commission (10-11 per cent) will be modest, it projected.
“The biggest impetus to revenue growth will continue to come from aggregate state GST collections that, after growing 18 per cent on-year last fiscal, will climb up another 13-14 per cent in the current fiscal. This will be driven by the resilience of the Indian economy to global turbulence, improving tax compliance, and the shift in economic activity from unorganised to the organised sectors, leading to greater formalisation of the economy,” Anuj Sethi, Senior Director, CRISIL Ratings, said.
Central tax devolutions, expected to grow 12-13 per cent this financial year, will be the second important driver.
While the proportion of the devolution is determined by the Finance Commission, the overall kitty is linked to gross tax collections by the Centre. This pool, which expanded by 19 per cent year-on-year last fiscal, said Crisil, should grow at a healthy pace this fiscal as well, supported by rising income tax and GST collections.
Tax garnered from liquor sales is expected to grow 5-7 per cent, primarily due to rising consumption. A majority of the 18 states analysed, barring Karnataka and Kerala, have kept their liquor tax structure unchanged.
“Revenue from sales tax on petroleum products will grow a modest 3-4 per cent on-year this fiscal after a flattish last fiscal. This will stem from higher fuel consumption driven by vehicular and industrial activity, even as the tax structure remains largely unchanged. While consumption is expected to grow 5-6 per cent, cuts in the prices of petrol and diesel undertaken this March will impact growth in sales tax collections by 200 bps (basis points),” Aditya Jhaver, Director, CRISIL Ratings, said.
Grants from the Centre are expected to grow by 4-5 per cent year-on-year, in line with the Union Budget outlay, including for centrally sponsored schemes and Finance Commission grants. The calculations assume a real GDP growth forecast of 6.8 per cent for 2024-25.
The rating in a caveat, however, asserted that volatility in the global economy and its impact on economic activity can alter revenue projections.
To ensure sustainable revenue growth, it suggested that the States will have to focus on expanding their own revenues and improving collection efficiencies. (ANI)
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