GST states quo wont do: Post-GST revenue divide widens across India
For the first time, the latest CAG State Finances 2023 24 report allows a clearer comparison of state revenues before and after GST’s implementation. What emerges is not simply a story of traditionally strong versus weak states, but rather a divide between those adapting effectively to the post GST fiscal framework and those that are not.
At the aggregate level, combined state revenue grew by about 2% in real terms in 2023 24, but this headline figure masks significant divergence. States such as Bihar, Gujarat, Madhya Pradesh and Uttar Pradesh saw real revenue growth of 6% or more, while Karnataka, Rajasthan and West Bengal recorded real declines. Even Maharashtra, one of India’s most economically advanced states, experienced nearly stagnant growth.
For years, critics feared that GST would centralise fiscal power and weaken states’ autonomy. However, the data suggests that GST has actually strengthened states’ tax performance: in 2018 19, SGST made up about 41% of states’ own tax revenue (SOTR), rising to 43% by 2023 24. Average annual SOTR growth also improved from around 9.5% pre GST to 11.7% post GST, and SGST itself grew at an annual average of approximately 13%.
These trends show that GST has increased tax buoyancy by improving compliance, invoice matching, and the formalisation of economic activity. However, strong GST collections do not automatically translate into fiscal strength if states fail to build non tax revenues (NTR) and monetise assets.
Take Karnataka: despite being among the most self reliant states (own tax revenue approximately 70% of total), it still saw overall revenue decline due to weak NTR and reduced asset monetisation. Meanwhile, Rajasthan and West Bengal combined relatively weak own tax revenue with falling NTR and a greater reliance on central transfers, creating a fiscally fragile mix.
A closer look at states with declining revenues shows a drop in NTR share, which includes dividends from PSUs, royalties, user charges, and other non tax sources. A persistent weakness in this area signals deeper structural issues rather than temporary dips.
In contrast, Uttar Pradesh has shown notable improvement, supported by both GST and other taxes and excise, highlighting the advantage of a diversified revenue base. States that broaden their revenue sources are better equipped to handle shocks, whereas those overly dependent on transfers risk continued dependence regardless of how well GST performs.
