Revenue growth of states in FY26 expected to be lower than that of FY25: Report

NEW DELHI: Indian states are expected to see slower revenue growth in the financial year 2025-26 (FY26) compared to FY25, mainly due to weaker growth in non-tax revenue. This was highlighted in a recent report by ICICI Bank, which analysed budget documents of 15 states that together contribute around 90 per cent of India’s GDP.

The report said, “States have penciled in lower revenue growth in FY26 compared to FY25 (13% vs 16%) on account of lower growth in ‘Own Tax Revenue’ and ‘Transfers from the Center”. According to the report, the total receipts of these states are estimated to grow by 12 per cent year-on-year (YoY) in FY26 to Rs 59 trillion. In comparison, the growth in total receipts for FY25 is estimated at 16 per cent.

Revenue receipts, which account for nearly three-fourths of total receipts, are expected to rise by 13 per cent YoY to Rs 43 trillion in FY26, down from 16 per cent growth in FY25. The slowdown in revenue growth is mainly because of weaker performance in non-tax revenue and central transfers. Non-tax revenue is expected to grow by just 12 per cent in FY26, compared to 23 per cent in FY25. Similarly, transfers from the central government are expected to rise by only 10 per cent, compared to 18 per cent in the previous year.

States’ Own Tax Revenue (SOTR) is expected to remain steady, growing by 14 per cent in FY26 to Rs 23 trillion, similar to the growth seen in FY25. In comparison, the central government’s Net Tax Revenue is budgeted to grow by 11 per cent over FY25 Revised Estimates to Rs 29 trillion.

The report also reviewed the actual revenue receipts for FY25 so far. Between April and February, states collected 75 per cent of their FY25 revenue target of Rs 38 trillion. However, there is a risk that states may not meet their full-year revenue targets, especially due to the underperformance of non-tax revenue. As of now, non-tax revenue stands at Rs 2 trillion against the target of Rs 3.6 trillion.

Overall, while tax revenues remain stable, the slowdown in other revenue streams may affect the states’ fiscal position in FY26. (ANI)