State Dependency on Central Funds and Tax Collection

• States have been increasingly reliant on Central transfers and grants over the past decade.

• From FY16 to FY25, 23-30% of the total revenue of States was collected from the Centre as transfers.

• In the 2000s and first half of 2010, the share was 20-24%.

• Nearly 65-70% of the non-tax revenue of States was collected from the Centre as grants in the last decade.

• States have not done enough to efficiently collect taxes to increase their own tax revenue.

• Revenue from non-tax revenue, other than Central grants, has been diminishing.

• The dependency of States on Central funds has risen in recent years.

• The share of own tax revenue and non-tax revenue of States has remained considerably below the 50% mark.

• The share of own tax revenue in States’ total revenue is largely driven by SGST.

• The share of own tax revenue without the contribution from SGST has declined from 34% to 28%.

• Interest receipts have not exceeded 5% of non-tax revenues in the last decade.

• The share of dividends and profits garnered from State public sector enterprises has remained under 1%.

• The share of interest receipts and earnings from services has come down.

• The share of grants from the Centre has increased (65-70% in the last decade compared to 55-60% in the 15 years before that).

• The Centre is playing a major role in the revenue earned by the States.