States’ Own Tax Revenue (SOTR) continued to be the single largest source of income for Indian states in 2023–24, underscoring its growing importance for fiscal autonomy even as sharp inter-State disparities persist, according to the State Finances 2023–24 report of the Comptroller and Auditor General of India (CAG).
In 2023–24, the combined SOTR of all 28 states stood at about Rs 18.8 lakh crore, accounting for nearly 50% of their total revenue receipts and 6.49% of aggregate Gross State Domestic Product (GSDP).
Over the past decade, SOTR has averaged around 47% of states’ revenue receipts, pointing to a gradual shift towards own-resource mobilisation, even as transfers from the Union government remain significant.
GST Engine
The introduction of the Goods and Services Tax (GST) has reshaped both the composition and growth trajectory of SOTR. In the post-GST period, average annual SOTR growth accelerated to about 11.7% during 2018–19 to 2023–24, compared with 10.5% in the pre-GST years.
State GST (SGST) now forms the backbone of own tax collections, supported by excise duty on alcohol, VAT on petroleum products, stamp and registration duties, and motor vehicle taxes—revenue streams that remain outside the GST framework.
However, states’ capacity to mobilise own tax revenues varies widely. Industrialised and consumption-driven states such as Maharashtra, Karnataka, Tamil Nadu, Gujarat, Telangana and Haryana together accounted for around 60% of total SOTR.
In these states, own tax revenues often exceed 60–70% of total revenue receipts, reflecting broader tax bases and stronger compliance. In contrast, several north-eastern and hill states continue to depend heavily on central transfers, with SOTR contributing less than 20% of revenue receipts in some cases.
Despite the rising share of SOTR, revenue buoyancy weakened in 2023–24, with the overall buoyancy ratio falling below one. This indicates that tax revenues grew marginally slower than nominal GSDP, signalling emerging pressures from economic moderation, limits to compliance gains, and structural constraints in expanding tax bases.
The CAG emphasised that strengthening tax administration, improving GST compliance, rationalising stamp duties, and leveraging digital tools will be critical for states seeking to expand fiscal space without excessive reliance on borrowing or central transfers.
Budgetary Rigidity
At the same time, committed expenditure remained a major pressure point on state finances in FY24, significantly constraining their ability to redirect spending towards development and capital investment, the report noted.
Committed expenditure—comprising salaries, pensions and interest payments—absorbed 43.3% of the combined revenue expenditure of all states in FY24. When subsidies and grants-in-aid linked to salaries are included, these largely inflexible outgoes together accounted for nearly 60% of total revenue expenditure, highlighting the rigidity of state budgets.
There were wide inter-State variations. Committed expenditure ranged from about 73% of revenue expenditure in Nagaland to nearly 31% in Maharashtra. Pension liabilities remained a key driver in several states, particularly those with older workforces and legacy pension systems, while interest payments reflected rising debt levels accumulated over the past decade.
High committed expenditure continues to constrain fiscal space by crowding out discretionary spending on infrastructure, social services and growth-enhancing capital outlays. Even states with improving revenue receipts found limited room for manoeuvre, as incremental revenues were often pre-empted by salary revisions, pension obligations and debt servicing.
The CAG underscored that sustained efforts to contain debt, rationalise subsidies, improve efficiency in public employment, and transition towards contributory pension schemes are essential to easing long-term fiscal stress. Without structural reforms, committed expenditure is likely to remain a binding constraint on states’ fiscal management and development priorities.