Revenue Receipts Of 16 Largest States Grows 5% During Apr-Nov Against Budgeted Rate Of 17.4% For FY24: ICRA

The agency said states have till now borrowed over 37 per cent against FY23 and as such, they would need to ‘borrow heavily this fiscal to service their debt and pay salaries and pensions’

The growth rate of the combined revenue receipts of the 16 largest states decreased by nearly 80 per cent to 5 per cent during the April-November period in the current fiscal year, a report by ICRA Ratings revealed. This growth stands against the budgeted 17.4 per cent target for the 2023-24 fiscal year. 

The ratings agency stated that states have till now borrowed more than 37 per cent against the previous fiscal year and owing to these numbers, they would need to ‘borrow heavily this fiscal to service their debt and pay salaries and pensions’. This decline was attributed to a contraction in sales tax and lower-than-budgeted growth of state goods and services tax (SGST) collections, excise duty, stamps, and registrations during the period under review, reported PTI.

This contraction led to a restriction on the growth of states own tax revenue (SOTR) to 11 per cent, the agency said. It added that the steep fall in Central grants also contributed heavily to the poor numbers. 

However, ICRA expects an upside in tax devolution in the last quarter of the ongoing fiscal year. It noted that the growth might still not be sufficient to manage the shortfall in grants. Further, ‘Even if a sizeable portion of the grants is released by the Centre to states in the fourth quarter, the actual growth of combined revenue receipts is still expected to miss the targeted growth rate by a wide margin,’ it said in the report.
Notably, the report doesn’t include the northeastern and hill states, Goa, and Bihar in the analysis. It informed that during the reviewing period in FY24, the combined SGST, excise duty, stamp duty, and registration fee collections of these 16 states increased by 10 to 12 per cent. 

However, during the period, sales tax collections reduced by 1.4 per cent, restricting the growth of the SOTR to 11 per cent against the budgeted 20 per cent. The combined sales tax collections during the first eight months of the ongoing fiscal year remained equivalent to 55 per cent of the budget estimates, indicating that actual collections would fail to meet the budget targets by a sizeable margin for multiple states.

Central grants to 13 of the 16 states declined on a year-on-year (YoY) basis during the period under review, which led to a combined dip in grants of 31 per cent in the sample states, against the budgeted growth of 19.8 per cent. “While we expect the actual tax devolution to exceed the amount budgeted for FY24 by Rs 30,000 crore, it will not be adequate to offset the shortfall in grants,” ICRA stated.

The agency stressed that if the states receive a sizeable amount of the expected grants in Q4, it could narrow the pace of contraction and the combined revenue receipts growth could slightly bypass the modest 5 per cent seen in the April-November period, however, it would stay well below the targeted growth of 17.4 per cent.

The SOTR accounts for the single-largest revenue head for the state at 50 per cent, followed by tax devolution at 25 per cent, central grants at 17 per cent, and states own non-tax revenue at 8 per cent. The SOTR includes 40 per cent GST, 24 per cent sales tax (mostly on fuels and liquor), 14 per cent excise duty, and 11 per cent each from stamp duty and registration fees, among other aspects. 

The data also revealed that SGST collections of 12 states grew by 9-15 per cent during the period under review, while Kerala saw a growth of 5 per cent against the budgeted rate of 28 per cent. The petrol consumption moderated to 6 per cent in the first eight months of FY24, after climbing 10.4 per cent in FY22 and 13.4 per cent in FY23. Diesel consumption also relaxed to 6.7 per cent in the reviewing period, after increasing 5.5 per cent in FY22, and 12 per cent in FY23.