Strong Tax Collections Boost State Coffers
Indian states experienced a significant surge in their own-tax revenues during the first four months of fiscal year 2027, from April to July. Data compiled by Axis Bank Research indicates a 13.7% year-on-year rise, bringing the total to ₹7.93 lakh crore. This robust performance was primarily driven by strong collections from the Goods and Services Tax (GST), stamp and registration duties, sales tax, and state excise.
Overall, states' revenue receipts grew by 7.6% year-on-year to ₹12.30 lakh crore in the same period, up from ₹11.43 lakh crore a year prior. Total tax revenue increased by 8.2% to ₹10.74 lakh crore, signaling an improvement in revenue growth by approximately 2 percentage points compared to the previous year.
Key Revenue Drivers Detailed
GST emerged as a pivotal contributor to this revenue improvement, with collections climbing 12.7% year-on-year to ₹3.67 lakh crore. Stamp and registration duties showed even faster growth, surging 16.9% to ₹98,000 crore. This increase was directly linked to higher real estate values across the country.
Sales tax collections also contributed substantially, rising 11.4% year-on-year to ₹1.46 lakh crore, supported by increased oil volumes. Furthermore, state excise revenue provided a significant boost, growing 13.5% to ₹1.07 lakh crore. Other taxes and duties recorded the sharpest growth, jumping 21.1% to ₹68,900 crore.
Central Transfers Decline Amidst Overall Growth
While own-tax collections soared, states' non-tax revenue also saw a healthy 25% increase year-on-year, reaching ₹1.09 lakh crore. However, this positive trend was tempered by a decline in transfers from the central government. The states' share of Union taxes decreased by 4.7% to ₹2.80 lakh crore, and grants-in-aid saw a steeper fall of 26.8% to ₹46,700 crore.
Axis Bank Research attributed this reduction in central transfers to factors such as the double devolution in June 2025 and lower grants provided under the 16th Finance Commission.
Moderated Spending, Fiscal Health Intact
The stronger revenue performance coincided with a moderation in overall state spending, which grew 6% year-on-year during April-July FY27, down from 11% in the previous fiscal year. Revenue expenditure increased by 5%, while capital expenditure remained robust, growing 15% year-on-year. Notably, capital spending in the economic sector saw a 22% increase, further supported by a 75% rise in loans under the SASCI program.
This favorable combination of strong revenues and moderated spending has kept states' April-July fiscal deficit at 21.5% of their FY27 budget estimates. Despite being slightly higher than the five-year median, current trends suggest that states are likely to meet their budgeted fiscal deficit ratio of 3.1% for FY27. Gross market borrowings for states in the first half of FY27 are also projected to be 6% higher than FY26, aligning with approximately 86% of the indicative calendar.