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| State govts to face slower revenue growth |
| BS Reporter / Mumbai Dec 19, 2008, 00:42 IST |
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 The four years of growth witnessed by state government might deteriorate from 2009 onwards, largely on account of lower growth in value-added tax (VAT) collections, state excise duty, stamp duty and registration charges, and devolution of central taxes.
Revenue from VAT, which was growing at 18 per cent annually for the last four years and accounting for 42 per cent of tax receipts, is expected to slow down because of slower economic growth and deceleration in consumption demand.
“Growth in state excise revenue is expected to decelerate because of the decline in industrial growth; excise contributes 8 per cent of tax receipts. Revenue from stamp duty and registration charges, comprising 9 per cent of states’ revenues, will suffer from the real estate slowdown, which has affected both the volume and value of property transactions,” said the latest report by rating agency Crisil.
“The slowdown in this sector would also reduce government’s revenue from sale and lease of land. Finally, slower growth in the Centre’s income tax and excise duty collections will affect the devolution of central taxes, which contribute 31 per cent of states’ revenue receipts,” the report said.
With the slowdown in state governments’ own tax revenues, as well as in devolution of taxes from the Centre, there would be a decline in the state governments’ key fiscal indicators — revenue deficit and gross fiscal deficit.
“The improvement in the fiscal profile of state governments is reflected in India’s 28 states reporting an aggregate revenue surplus of Rs 22,500 crore in 2007-08, from a deficit of Rs 63,400 crore in 2003-04. This is now set to change,” the report said.
It further added that the adverse affect of the lower revenue growth could be more pronounced with the higher development and non-development expenditure. For instance, with general elections and elections in some major states there would be an added pressure to increase populist expenditure, subsidies, and tax waivers and concessions.
“A shortfall of even 4 per cent in aggregate budgeted revenues for 2008-09 can wipe out the state governments’ entire revenue surplus and push them back into revenue deficits. While the impact will begin to be felt in 2008-09, the full effect of these trends will manifest in 2009-10 and thereafter. Crisil expects that many states will borrow beyond the Fiscal Responsibility and Budget Management Act targets, resulting in higher debt levels,” said Managing Director and CEO Crisil Roopa Kudva.
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