India's top 18 states' revenues to grow 7-9% in FY26, says Crisil report

Crisil forecasts 7-9% revenue growth for India's top 18 states in FY26, driven by GST, liquor sales, and Centre support, with slower growth than the 10% decadal average

India’s 18 largest states, accounting for over 90 per cent of the country’s gross state domestic product (GSDP), are likely to record a marginal uptick in revenue growth of 7–9 per cent in FY26, compared to the 6.6 per cent growth seen in FY25, according to a report by rating agency CRISIL on Tuesday.

 

This growth, slower than the decadal average of about 10 per cent, is expected to lift these states’ cumulative revenue to approximately ₹40 trillion in FY26, up from ₹37.26 trillion in FY25. The anticipated uptick in state revenues will mainly be driven by steady Goods and Services Tax (GST) collections and continued support from the Centre through tax devolutions and grants.

 

 

States' own tax revenues, which make up about 52 per cent of their total income, are projected to grow by roughly 8 per cent in FY26, reaching ₹21.08 trillion. Within this, GST collections, which account for the largest share, are expected to grow 9-10 per cent to ₹9.18 trillion, slightly lower than the 10.2 per cent increase observed last year.

 

“While better tax compliance and the continuing shift in economic activity from the unorganised to the organised sectors are expected to support GST revenue, subdued domestic consumption and inflation could dampen growth and pose a downside risk to that expectation,” said Anuj Sethi, Senior Director at CRISIL Ratings.

 

Revenue from liquor sales is also projected to grow 9-10 per cent, reaching ₹4.17 lakh crore, driven by a combination of rising consumption and higher excise duties. On the other hand, revenue from petroleum taxes is expected to rise by just 2 per cent to ₹2.87 trillion. Other sources, such as states’ non-tax revenue, are also expected to grow slowly at around 4 per cent.

 

The 18 states include Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh, Kerala, Odisha, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand, and Goa.

 

After a contraction of about 10 per cent last fiscal year, grants-in-aid from the Centre are expected to recover, with projected growth of 3-4 per cent. This rebound is attributed to increased outlays for centrally sponsored schemes and local body grants, as outlined in the latest Union and state budgets.

 

The report also noted that states will continue to benefit from central tax devolutions, which are expected to grow 11-12 per cent this year, following a nearly 14 per cent increase in FY25. “Rising gross tax collections, supported by growth in income tax and GST collections, remain a key driver,” said Aditya Jhaver, Director, CRISIL Ratings.

 

CRISIL’s projections depend on steady nominal GDP expansion and could be affected by uncertainty in global markets, weak domestic demand, and inflation trends. However, states could outperform projections if tax buoyancy exceeds expectations or if there is stronger central government support.

 

“To ensure sustainable revenue growth, states will have to focus on expanding their own revenue and improving collection efficiency,” the report concluded.