States’ revenue growth seen accelerating to 9-11% in FY27, says Crisil

Revenue of 18 large states, which account for more than 90% of India’s gross state domestic product (GSDP), is expected to rise 9-11% year-on-year and cross ₹44 lakh crore this fiscal, accelerating from an estimated 8% growth last fiscal, according to a report by Crisil.

The uptick will be driven primarily by higher GST collections and tax devolution from the Centre, even as growth in several other revenue streams remains moderate.

Own taxes account for a little over half of states’ revenue receipts, with GST contributing around 40-45%. Liquor and petroleum taxes are the other significant contributors. States’ share in central taxes accounts for nearly a third of total revenue receipts, while grants and non-tax revenue contribute about 9% each.

GST to remain key driver of states’ revenue growth

GST is expected to remain the biggest swing factor for states’ revenues. Integrated GST (IGST) on imports contributes an estimated one-fourth of the overall GST pool, with domestic supplies of goods and services accounting for the rest.

“We expect states’ GST revenue to rise 12-13%, supported by resilient domestic consumption and robust import-linked collections. Elevated commodity prices, rupee depreciation and stable import volumes should sustain IGST collections from imports, while GST 2.0, implemented in September 2025, should improve revenue buoyancy. Together, these factors should keep collections healthy despite geopolitical uncertainty,” said Anuj Sethi, Senior Director, Crisil Ratings.

The momentum is already visible. In the five months ended August 31, 2026, states’ GST revenue grew 16% year-on-year, aided by nearly 30% growth in IGST collections from imports of electronics, machinery, gold, fertilisers and other key goods.

However, the pace is expected to moderate as commodity prices stabilise and currency volatility eases in the second half of the fiscal.

Revenue from liquor sales is expected to increase 7-8%, supported by stable consumption and periodic revisions in duties and fees. Petroleum-tax revenue is projected to grow 4-5%, driven mainly by volume expansion and higher pump prices, with states so far refraining from reducing tax rates. Any tax cuts in response to a further rise in crude oil and retail fuel prices will remain a key monitorable.

Other own-tax revenue, led by stamp duty collections, is expected to grow 6-7% on a high base as growth in the real estate sector moderates. Overall, states’ own-tax revenue is projected to rise 9-10% this fiscal, with GST providing the primary impetus.

Tax devolution to provide second revenue boost

Tax devolution from the Centre will be the second major growth engine for states. States receive 41% of the Centre’s divisible tax pool, with personal income tax forming the largest component, followed by corporate tax and the Centre’s GST collections.

“A double-digit increase in tax devolution will complement the GST-led improvement in state revenues. We expect devolution flows to grow 11-12% as personal income-tax collections rebound from the low base created by last year’s tax-slab restructuring, while stronger nominal economic growth supports indirect-tax collections,” said Aditya Jhaver, Director, Crisil Ratings.

“The resulting rise in untied revenues should enhance the fiscal flexibility of states, although the extent of the benefit will vary depending on their revenue mix and spending commitments,” he added.

Beyond taxes, grants-in-aid are 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-linked conditions, as well as increased funding for select centrally sponsored schemes.

Non-tax revenue, driven largely by mining royalties, is projected to grow 9-10%, aided by stable mineral production, firmer prices and continued auctions of mineral blocks.

Crisil said the improvement will not be uniform across states and will depend on revenue mix, tax buoyancy and compliance with grant-linked conditions. The projections assume nominal GDP growth of around 13% in FY27, compared with about 8.9% in the previous fiscal.