The latest Comptroller and Auditor General (CAG) report on state finances for 2013-14 to 2022-23 offers fresh vital information about the fiscal health of state of Indias. Contrary to popular belief, states do not heavily rely on central Goods and Services Tax (GST) collections. The report dispels myths about revenue dependencies and marks the diverse sources of state income. It also reveals variations in revenue surpluses and deficits across states.
GST Council Meeting and Revenue Concerns
The recent GST Council meeting was expected to be contentious due to fears of falling revenues from tax rate cuts. However, the meeting concluded quickly with full consensus. States showed little concern over reduced central GST shares. This indicates their growing fiscal independence and diversified revenue streams.
Dependence on Central Tax Transfers
In 2022-23, only about 27 percent of total revenue receipts of 28 states came from the Centre’s tax devolution. This share has remained below 30 percent over the past decade. Ten states received 73 percent of the Centre’s tax share, with Uttar Pradesh, Bihar, and Madhya Pradesh as the largest beneficiaries. Smaller states, especially in the Northeast, depend less on central transfers.
States’ Own Tax Revenues (SOTR)
States generate most of their revenue through own-tax sources. These include state GST (50 percent share), value-added tax, excise duties on liquor and petroleum, vehicle taxes, stamp duties, and land registration fees. Larger states like Haryana, Telangana, Maharashtra, Karnataka, Gujarat, and Tamil Nadu derive 60-70 percent of their revenue from own taxes. The buoyancy of own-tax revenues improved over the decade, indicating better tax effort relative to GDP.
State Non-Tax Revenues (SNTR)
Non-tax revenues are vital for mineral-rich and newer states. These include royalties from mining, dividends from state enterprises, and user charges. Odisha, Goa, Chhattisgarh, and Jharkhand rely heavily on such revenues. Odisha earns nearly 90 percent of its SNTR from mineral royalties. Kerala’s non-tax revenues are dominated by lottery earnings. Telangana’s SNTR notably includes large income from land sales.
Revenue Surpluses and Deficits
In 2022-23, 16 states recorded revenue surpluses. Arunachal Pradesh led with the highest surplus, followed by Jharkhand and Odisha. However, some large states showed deficits. Maharashtra had a minor deficit, while Punjab, Haryana, Rajasthan, Tamil Nadu, Andhra Pradesh, and West Bengal faced shortfalls. These deficits reflect structural fiscal challenges.
Sustainability and Future Challenges
The report marks states’ resourcefulness in raising revenues beyond central GST shares. However, the sustainability of certain revenue sources like land sales, lotteries, and mineral royalties remains uncertain. Policymakers must consider long-term fiscal health while balancing revenue generation and economic growth.
Questions for UPSC:
- Critically discuss the role of Goods and Services Tax (GST) in shaping the fiscal federalism of India. How does it affect centre-state financial relations?
- Analyse the impact of state own-tax revenues and non-tax revenues on the fiscal autonomy of state of Indias. With examples, discuss the challenges in maintaining sustainable revenue sources.
- Examine the factors leading to revenue surpluses and deficits among state of Indias. How do these fiscal imbalances influence state-level development policies?
- Discuss in the light of India’s fiscal federalism, the implications of heavy dependence on mineral royalties and land sales for state revenues. What alternative strategies can states adopt for stable income generation?
