New Delhi: States’ share in total revenue derived from central transfers has risen significantly over the last decade (FY16 to FY25), according to RBI data.
Transfers from the Union government account for 23-30% of states’ revenue, compared to 20-24% during the 2000s and early 2010s, the Hindu reported.
The increase in reliance on central grants is particularly pronounced in non-tax revenue. Data from the RBI shows that 65-70% of the non-tax revenue of states came from central grants in the last decade, up from 55-65% in the 2000s and the early 2010s. At the same time, revenue from non-tax sources other than these grants has fallen.
The share of non-tax revenue in states’ total revenue is likely to go below the 24% mark in FY25 for the first time in the past 25 years, the Hindu’s report said.
Own tax revenue
According to the report, states’ own tax revenue has consistently remained below the 50% mark. This share often exceeded or remained close to 50% in the 2000s and early 2010s, the report said.
Sources of states’ own tax revenue include stamp duty, registration fees, motor vehicle tax, and the State Goods and Services Tax (SGST).
While SGST accounted for 15% of the states’ total revenue in FY18, it currently makes up about 22%. Excluding SGST, the share of states’ own tax revenue has fallen from 34% to 28%.
However, SGST, which is determined by the GST Council, has been a point of contention between the Union and state governments.
Finance ministers from several opposition-ruled states, including Tamil Nadu, Kerala and West Bengal, have criticised the council’s decisions on rate-setting.
Interest receipts too have accounted for less than 5% of states’ non-tax revenue in the last decade, compared to 5-9% in the 2000s and early 2010s. Similarly, dividends and profits from state public sector enterprises have remained under 1%, and earnings from services such as public health and power did not exceed 30% in the last decade.
Meanwhile, the ratio of states’ own tax revenue to their gross state domestic product (GSDP) has declined in several states. Tamil Nadu’s ratio dropped from 7.72% in FY13-15 to 6.17% in FY22-24.
Similar declines were seen in Karnataka, Kerala, Bihar, Delhi, and Madhya Pradesh, while states like Maharashtra, Manipur, Meghalaya, Odisha and Uttarakhand recorded improvements, the report said.
