Mumbai: The growth in aggregate GST collection for states is likely to moderate to 12-14 percent in FY24 from 20 percent in FY23, domestic rating agency Crisil said on Wednesday. However, despite the moderation in growth, the GST collections will continue to be the biggest driver of revenue growth for states, the agency's senior director Anuj Sethi said.
"...growth in aggregate state GST collection will moderate from 20 percent on-year last fiscal to 12-14 percent this fiscal," he added.
Factors like the resilience of the Indian economy amid global turbulence, moderating inflationary environment, and increasing tax compliance will help the GST collections, Sethi said. The rating agency said that 18 states account for 90 percent of aggregate gross state domestic product may see steady revenue growth at 6-8 percent to a cumulative Rs 34 lakh crore this fiscal against a 7.3 percent growth in FY23.
With the withdrawal of GST compensation support and muted sales tax collections and grants, growth this year will be predominantly supported by Goods and Services Tax (GST) collections, devolutions from the Centre and taxes and duties on liquor sales, together comprising 55-60 percent of aggregate state revenues, it noted.
Growth in the central tax devolutions pool will moderate to 10 percent from 13 percent in the last fiscal, the agency said, adding that this will be among the main driver of revenues for states. "While the proportion (of central tax devolution) is determined by the Finance Commission, the overall kitty is linked with gross tax collections by the Centre," it said.
Excise duty and sales tax from liquor sales will also grow healthy at 10-12 percent, led by increasing consumption as most states have kept their tax structure unchanged, it said. States' revenue from sales tax on motor fuel may increase only by a modest 6-8 percent driven primarily by steady demand for petroleum products, with only a handful of states having announced revisions in their tax structures for motor fuel in their budgets for FY24, it said.
"Among the other main reasons for the modest revenue growth overall, would be the marginal growth in grants from the Centre. This includes grants towards Centrally Sponsored Schemes and Finance Commission grants, including those towards post-devolution revenue deficits, based on the budget calculations and Finance Commission stipulations," its director Aditya Jhaver said.
Jhaver reminded that GST compensation grants from the central government at Rs 90,000 crore last fiscal are no longer available this fiscal as the scheme ended effective June 30, 2022. The agency also said a volatile global economic outlook and its impact on export-linked sectors could negatively impact the revenue projections, while better-than-expected tax buoyancy, any extension in the GST compensation period, or support from the Centre in the form of higher grants could augment states' collections.
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