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Domestic rating agency Crisil said the growth in aggregate GST collection for states is likely to moderate to 12-14 per cent in FY24 from 20 per cent in FY23. The agency’s senior director Anuj Sethi said despite the moderation in growth, the GST collections will continue to be the biggest driver of revenue growth for states. He added factors like the resilience of the Indian economy amid global turbulence, moderating inflationary environment, and increasing tax compliance will help the GST collections. The rating agency said 18 states that account for 90 per cent of aggregate gross state domestic product may see steady revenue growth at 6-8 per cent to a cumulative Rs 34 lakh crore this fiscal against a 7.3 per cent growth in FY23.

It noted that with the withdrawal of GST compensation support and muted sales tax collections and grants, growth this year will be predominantly supported by Goods and Services Tax (GST) collections, devolutions from the Centre and taxes and duties on liquor sales, together comprising 55-60 per cent of aggregate state revenues. It said growth in the central tax devolutions pool will moderate to 10 per cent from 13 per cent in the last fiscal, and added that this will be among the main driver of revenues for states. It said ‘while the proportion (of central tax devolution) is determined by the Finance Commission, the overall kitty is linked with gross tax collections by the Centre’.

It said excise duty and sales tax from liquor sales will also grow healthy at 10-12 per cent, led by increasing consumption as most states have kept their tax structure unchanged. States’ revenue from sales tax on motor fuel may increase only by a modest 6-8 per cent driven primarily by steady demand for petroleum products, with only a handful of states having announced revisions in their tax structures for motor fuel in their budgets for FY24. The agency also said a volatile global economic outlook and its impact on export-linked sectors could negatively impact the revenue projections, while better-than-expected tax buoyancy, any extension in the GST compensation period, or support from the Centre in the form of higher grants could augment states’ collections.