States' budgeted revenue mop-up for FY25 to top pre-Covid level: PRS Report

New Delhi: Revenue collections of states, as a percentage of their gross domestic product, are budgeted to surpass pre-Covid levels this fiscal year due to expectations of improved revenue streams and higher transfers from the Centre, according to PRS Legislative Research. It, however, noted the rising fiscal deficit of states.

States have budgeted their combined revenue mop-up at 14.3% of gross state domestic product (GSDP) for 2024-25, up from 13.3% last fiscal and 13.8% in the pre-Covid year of 2018-19, the research institute said in a report.

But states' combined fiscal deficit has started inching up again from FY24 when it rose to 3% of GSDP from 2.7% in the previous year, partly due to impact of interest payments for elevated borrowings during the pandemic.


States have budgeted a higher fiscal deficit of 3.2% of GSDP this fiscal year.

The pandemic started hitting India's economic output towards the end of 2019-20, although the slowdown had set in before the Covid onslaught.

SGST revenue
Collection of state goods and services tax (SGST) touched 2.9% of GSDP last fiscal, exceeding the 2018-19 level of 2.7%. The SGST mop-up made up a significant 40% of states' own revenue last fiscal, although there were sharp interstate variations.

The report also said states can raise additional revenue from minerals following a recent Supreme Court judgement that upheld states' power to tax mineral rights. The apex court also allowed states to recover retrospective demands from such levies.

Pension switch
The report pointed out that if states switch to the new Unified Pension Scheme (UPS), primarily meant for central government employees, it could increase their expenditure. States' pension cost is estimated at 1.6% of GDP this fiscal.

Following decisions by states like Rajasthan, Himachal Pradesh, and Punjab to reintroduce the old pension scheme, which is set to inflate their burden over the longer run, the Centre approved the UPS in August for its employees. Under this, the Centre's share will rise to 18.5% of basic pay and dearness allowance of an employee from 14%. Maharashtra decided to implement the UPS for its employees, and some others are also assessing the impact of such a shift.