Statsguru: States' finances are improving, debt likely to shoot up

When the Union government announced Budget for 2022-23, it had projected revenue to be 8.5% of GDP. A Business Standard analysis of latest report on state finances showed that states are catching up

Ishaan Gera | New Delhi
Last Updated at January 22, 2023 21:59 IST

Illustration: Ajay Mohanty

When the Union government had announced the Budget for 2022-23, it had projected revenue to be 8.5 per cent of gross domestic product (GDP). A Business Standard analysis of the latest report on state finances released by the Reserve Bank of India last week showed that states were catching up. The revenue-to-GDP ratio projected by states was 8.2 — the highest in the past six years (chart 1). While states’ own revenue as a proportion of GDP is expected to rise, it is still low as a proportion of total revenue (the other part comes from central transfers). In 2022-23, the proportion of states’ own revenue compared to total revenue is expected to be 54.7 per cent, compared with 55.6 per cent in 2019-20 (chart 2). The silver lining is the improvement in states’ own revenue generation capacity. However, it is still not comparable to 2017-18, when the tax revenue ratio was 48.7 per cent. India introduced the goods and services tax in July 2017. Central transfers have declined in the last three years but will still end up being higher than the 2019-20 ratio of 44.4 (chart 3).

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