New Delhi, India Due mostly to slower increase in non-tax income, Indian states are anticipated to see slower revenue growth in the fiscal year 2025–2026 (FY26) than in FY25.
A recent analysis by ICICI Bank, which examined the budget records of 15 states that together account for around 90% of India’s GDP, brought this to light.
According to the study, “States have pencilled 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 Centre” .
The research estimates that in FY26, these states’ total revenues would increase by 12% year over year (YoY) to Rs 59 trillion. In contrast, it is projected that overall revenues would increase by 16% in FY25.
In FY26, revenue receipts—which make up over three-fourths of total receipts—are predicted to increase by 13% YoY to Rs 43 trillion, a decrease from the 16% growth in FY25.
The primary reason of the revenue growth slowdown is the worse performance of central transfers and non-tax revenue. It is anticipated that non-tax revenue would increase by just 12% in FY26 as opposed to 23% in FY25. In a similar vein, central government transfers are predicted to increase by only 10% as opposed to 18% the year before.
It is anticipated that States’ Own Tax Revenue (SOTR) would continue to increase steadily, increasing by 14% to Rs 23 trillion in FY26, which is comparable to the growth seen in FY25.
In contrast, it is projected that the federal government’s net tax revenue would increase by 11% to Rs 29 trillion above FY25 Revised Estimates.
The actual revenue collections for FY25 so far were also examined in the study. States earned 75% of their FY25 income goal of Rs 38 trillion between April and February. States run the danger of falling short of their full-year revenue goals, however, particularly if non-tax income performs poorly. Non-tax income now stands at Rs 2 trillion, falling short of the Rs 3.6 trillion projection.
Even while tax collections are steady overall, the states’ financial situation in FY26 may be impacted by the decline in other income sources.
