Increase in Revenue Growth of 7-9% Forecasted for these 18 Indian States According to a Report
In a recent report by Crisil Ratings, it is projected that India's 18 largest states will experience a revenue growth of 7-9% in fiscal 2026. This growth is primarily driven by several factors, including steady Goods and Services Tax (GST) collections, growth in liquor tax revenues, and modest growth in petroleum tax revenues.
Goods and Services Tax collections remain the primary driver for states' taxes, according to Anuj Sethi, Senior Director at Crisil Ratings. GST collections are projected to grow by 9-10% this fiscal, although subdued domestic consumption and inflation could pose a downside risk to this growth.
The growth in liquor sales revenue is also expected to be significant, with a projected growth of 9-10% this fiscal, following a growth of 9.6% last fiscal. This growth is attributed to a volume growth of 5-6% and states levying higher excise duty.
Modest growth in petroleum product sales tax is anticipated at around 2%, similar to last fiscal.
The recovery in central grants is another key factor contributing to the projected revenue growth. Grants from the Centre are projected to recover and grow by 3-4% due to higher outlay towards centrally sponsored schemes (CSS) and Finance Commission grants to urban and rural local bodies. The report from Crisil Ratings also states that grants are expected to witness recovery during fiscal 2026, after a fall last fiscal.
The revenue growth of 7-9% shows a marginal improvement over the 6.6% recorded in the previous fiscal but remains below the decadal average of around 10%.
The fiscal outlook also depends on macroeconomic conditions, including nominal GDP growth expectations of 9%, which underpin the sustainability of these tax collections. Better tax compliance and the continuing shift in economic activity from the unorganised to the organised sectors are expected to support GST revenue.
States' revenue primarily consists of State Owned Tax Revenue (SOR), which includes Goods and Services Tax (GST), liquor tax, and petroleum tax. The budget estimates of central and state governments for fiscal 2026 indicate the expected growth in grants from the Centre.
The 18 largest states in India, accounting for over 90% of the gross state domestic product, are projected to see revenue growth of Rs 40 lakh crore this fiscal.
In conclusion, the combination of strong GST collections, recovered grants, steady central transfers, and moderate growth in other state taxes collectively drive the forecasted revenue growth for India's major states in fiscal 2026.
Financing for the states is projected to improve due to the anticipated growth in Goods and Services Tax (GST) collections, which are expected to grow by 9-10% in this fiscal.
The business environment for liquor sales is expected to flourish, as there is a projected growth of 9-10% in revenue from liquor taxes this fiscal.
