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  3. States’ revenue growth to slide to 7-9% in FY23 despite robust GST collections: Crisil

States’ revenue growth to slide to 7-9% in FY23 despite robust GST collections: Crisil

25 Aug 2022 Evaluate

Rating agency Crisil in its latest report has said that States’ revenue growth will slide to 7-9 per cent in FY23 even as handsome Goods and Services Tax (GST) collections will help in the accretion. It said that the revenue growth had galloped 25 per cent in FY22 courtesy a lower base in the pandemic-affected FY21. In FY23, it said healthy tax buoyancy will be supporting the revenue growth, with GST collections and devolutions from the Centre - which together comprise up to 45 per cent of the states’ revenue - expected to show robust double-digit growth.  It said a flattish or low single-digit growth in sales tax collections from petroleum products (8-9 per cent of total revenue) and grants recommended by the Fifteenth Finance Commission (13-15 per cent) will be acting as the moderating factors.

The agency said the share of states in central taxes is expected to grow further this fiscal, and added that while the proportions are determined by the Finance Commission, the overall kitty is linked with the central government’s gross tax collections. It also said this pool, which expanded 40 per cent last fiscal, should further grow by 15 per cent this fiscal. Fuel tax collections are expected to be almost unchanged because gains from a 25 per cent increase in crude price and better sales volumes will be offset by the reduction in central excise on petrol and diesel in November 2021 and May 2022, and sales tax cuts by some states.

It further said Centre’s grants, including Centrally Sponsored Schemes, Finance Commission grants and revenue deficit, are likely to see only marginal growth this fiscal. Additionally, GST compensation payments, which were 7-9 per cent of revenue in past two fiscals, will also end, with the expiration of the compensation period on July 1, 2022. It said the outlook is based on an assumption of real GDP growth at 7.3 per cent and no lockdown-related impacts, and added that a slowdown in economic activity due to higher-than-expected inflationary pressures could negatively impact revenue.

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