According to a report released on Wednesday by Crisil Ratings, the top 17 states in the nation, which make up 85–90% of the total gross state product (GSDP), will likely see a 7-9% increase in overall income this fiscal year.
Because of the pandemic-related slowdown in the economy, the revenue increased by 25% above a level base in the previous fiscal year, according to a study from the rating agency.
A vast number of state economies were examined in the paper, including those of Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, and Rajasthan.
Goods and Services Tax (GST) collections and devolutions from the Center, which together comprise 43–45% of the states' revenue, are likely to show substantial double-digit growth this fiscal, the research said. This will underpin revenue growth.
Anuj Sethi, senior director at Crisil Ratings, was quoted in the newspaper as saying that the aggregate state GST collections, which had already recovered by 29% on-year previous fiscal, will be the biggest driver of revenue growth.
“We expect this momentum to sustain and collections to further increase 20% this fiscal, supported by better compliance levels, higher inflationary environment and steady economic growth," Sethi said in the report.
It is anticipated that states will continue to contribute more to federal taxes. The total pot is tied to the amount of gross tax receipts received by the central government, according to the study, even though the Finance Commission sets the proportions. According to the research, this pool, which increased by 40% in FY22 to reach $7.34 trillion, should increase by another 15% this fiscal.
On the other hand, the research predicted that state fuel tax collections would almost certainly remain range-bound. That's because the drop in the central excise on gasoline and diesel in November 2021 and in May 2022, followed by a reduction in sales tax rates by some states in the current fiscal year's predicted 25% on-year increase in crude price and higher sales volumes, would counter those benefits.
On the basis of the budget calculations and the requirements of the Finance Commission, the report also stated that the various grants offered by the Centre, such as grants for centrally sponsored schemes, grants from the Finance Commission, and grants for the revenue deficit, are likely to experience only slight growth this fiscal.
