The growth of GST Collections and Central Devolution Drive Growth
The top 18 states in India that contribute 90% of the GDP in the country are expected to earn a revenue of Rs 38 lakh crore this fiscal with a growth of 8-10% this year as per the CRISIL Ratings report. The growth was 7 last year. 5%. This increase will be mainly led by healthy Goods & Service Tax (GST) and devolution from the Centre which forms about 50 per cent of the aggregate state revenues.
Consistent Revenue stream from liquor and Petroleum taxes
Liquor sales form part of the revenue stream contributing 10% of the total sales; growth is expected to be 5-7% because of increased consumption. Petroleum product sales tax contributing about 7-8% of the total revenue is expected to rise by 3-4% next fiscal year after showing a tepid growth in the last fiscal year.
Increase due to GST and Central Devolution
Anuj Sethi, Senior Director at CRISIL Ratings, pointed out that state GST collections which have been growing at ~18% last fiscal are expected to grow by 13-14% this fiscal. This growth is attributed to the recovering Indian economy, better tax compliance, and the formalization of the economy. Central tax devolutions, which are expected to increase by 12-13% will also be a major source of states’ own tax revenues. This growth is linked with the gross tax collections of the Centre which showed a rise of 19% last fiscal.
Petroleum prices and grants are among the most critical determinants of the economy since they have a direct effect on the country’s revenue and expenditure.
CRISIL Ratings Director Aditya Jhaver pointed out that even though fuel consumption will increase by 5-6%, a reduction in petrol and diesel prices will reduce the sales tax revenues by about 200 basis points. It is anticipated that the Centre’s grants are going to increase in the range of 4-5% which is in proportion with the Union Budget outlay comprising centrally sponsored schemes and Finance Commission grants.
Economic Fluctuations and Prospects for the Future
CRISIL said that global economic conditions might impact these revenues. Still, more-than-expected tax buoyancy or increased central grants could add to state revenues. In this regard, the states need to pay attention to the sources of their own revenues and the efficiencies of collections for sustainable growth.
