India’s 18 largest states, accounting for over 90 per cent of the country’s gross state domestic product (GSDP), are likely to record a marginal uptick in revenue growth to 7–9 per cent this year, from 6.6 per cent clocked in 2024-25 (FY25), rating agency Crisil said in a report on Tuesday.
This growth, slower than the decadal average of about 10 per cent, would lift these states’ cumulative revenue to around Rs 40 trillion in FY26 from Rs 37.26 trillion in FY25.
The anticipated uptick in state revenues will mainly be fuelled by steady goods and services tax (GST) collections and continued support from the Centre in the form of tax devolutions and grants.
States’ own tax revenues, making up about 52 per cent of their total income, are expected to grow by roughly 8 per cent in FY26 to Rs 21.08 trillion.
Within this, GST collections, which account for the largest share, are projected to grow 9-10 per cent to Rs 9.18 trillion, slightly lower than the 10.2 per cent increase seen last year.
“While better tax compliance and continuing shift in economic activity from the unorganised to the organised sectors are expected to support GST revenue, subdued domestic consumption and inflation can be a dampener,” said Anuj Sethi, senior director at Crisil Ratings.
Revenue from liquor sales is also projected to grow 9-10 per cent, touching Rs 4.17 trillion, driven by a combination of rising consumption and higher excise duties.
On the other hand, revenue from petroleum taxes is expected to rise just about 2 per cent to Rs 2.87 trillion.
Other sources, such as states’ non-tax revenue, are also expected to rise slowly at around 4 per cent.
These states are Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh, Kerala, Odisha, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand, and Goa.
After a contraction of 10 per cent in FY25, grants-in-aid from the Centre are set to recover with a projected growth of 3-4 per cent.
This is attributed to increased outlays for centrally sponsored schemes and local body grants, as planned in the latest Union and state Budgets.
The report also noted that states will continue to benefit from central tax devolutions, which are expected to grow 11-12 per cent this year after rising nearly 14 per cent in FY25.
“Rising gross tax collections, supported by growth in income tax and GST collections, remain a key driver,” said Aditya Jhaver, director, Crisil Ratings.
Crisil’s projections hinge on steady nominal GDP expansion and could be affected by uncertainty in global markets, weak domestic demand, and inflation trends.
On the other hand, states could outperform its projections if tax buoyancy exceeds expectations or if there is stronger central government support.
“To ensure sustainable revenue growth, states will have to focus on expanding their own revenue and improving collection efficiency,” the report concluded.
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