Top-10 States' revenues set to top pre-Covid level this year

Revenues of India's top-10 States, which plunged 600 basis points (bps) last fiscal, are set to exceed the pre-pandemic or fiscal 2020 - levels by 600 bps this fiscal. The recovery would be driven by higher tax buoyancy, rise in sales tax collections from petroleum products (such as petrol and diesel) coupled with increase in grants as per the recommendations of the Fifteenth Finance Commission. The increased revenue for States would come even as their demand for GST compensation from the centre remains high. The centre is anticipating Rs 1.58 lakh crore shortfall in GST compensation cess due to States in FY22, a number which several States feel would remain short of covering the shortfall in indirect tax collections during the year. A Crisil Ratings study of 10 States that account for 70 per cent of aggregate gross State domestic product indicates to the buoyancy in State tax collections this year. Aggregate Goods and Services Tax (GST) collections, which account for a fifth of the revenues of States, had recovered well in the fourth quarter of last fiscal as economic activity sprung back. The momentum continues this fiscal, with April and May collections averaging Rs 0.93 lakh crore, marking an 11 per cent growth over fiscal 2020.