The state government's fiscal deficit plunged to 2.9 per cent of gross domestic product, falling within the limit of 3 per cent as determined by the Fiscal Responsibility Legislation. According to the budget documents of the State government and the Comptroller and Auditor General of India (CAG), the projected Fiscal Deficit for FY25 is 3.2 per cent of the GDP.

The states have registered a robust growth in their tax revenue due to the increased collection from stamp and registration fees, States’ goods and services tax (SGST) and taxes on vehicles and electricity. Non-tax revenues also increased from renewing existing mining leases and mining auctions. Consolidated revenue receipts have decreased from 13.6 per cent of the GDP in 2022-23 to 13.3 per cent, showing a marginal moderation of 0.30 basis points. While budget estimates predict the receipts to increase by 1 per cent in 2024-25 to 14.3 per cent.

The recent report by RBI on the state government’s fiscal reforms underlines the efforts for fiscal consolidation from the post-pandemic period of 2020-21 when the fiscal deficit was 4.1 per cent of the GDP.  Similarly, the total outstanding liabilities decreased from 31 percent of GDP during 2020-21 to 28.5 percent of GDP in 2023-24.

State governments are employing various steps to boost revenue collection. Gujarat has established GST Seva Kendras to simplify registration and prevent documentation misuse. Haryana plans to create facilitation cells to assist startups, MSMEs and SMBs with GST compliance. States are leveraging technology to enhance transparency and compliance. Haryana and Assam have adopted a QR code-based track and trace system for the alcohol supply chain. Delhi uses data analytics and automation software for GST tax administration, and Karnataka and Tamil Nadu use AI-driven analytics for real-time monitoring.

Considerable losses of power companies are one of the major red flags raised by the report. The losses of power distribution companies stood at a staggering Rs 6.5 lakh crore. The government expenditure on guarantees is another major concern. Such expenditure will be crystallized and increase the budgetary deficits.