Indian states are expected to see slower revenue growth in FY26 at 13%, down from 16% in FY25, due to weak non-tax revenue and lower central transfers, according to an ICICI Bank report.

States' Revenue Growth to Slow in FY26 Due to Weaker Non-Tax Income: ICICI Bank Report

Indian states are projected to post a 13% revenue growth in FY26, down from 16% in FY25. An ICICI Bank report cites weaker non-tax revenue and lower central transfers as the key reasons for the slowdown, even as own tax collections remain stable.
States' Revenue Growth to Slow in FY26 Due to Weaker Non-Tax Income: ICICI Bank Report.Indian states are expected to see a slower revenue growth in the financial year 2025–26 (FY26) compared to FY25, according to a recent report by ICICI Bank. The report is based on the budget documents of 15 states that together make up around 90% of India's GDP.

Key Highlights:
Revenue growth in FY26 is projected at 13%, down from 16% in FY25.

The slowdown is mainly due to lower growth in non-tax revenue and reduced central government transfers.

Non-Tax Revenue:

Expected to grow by 12% in FY26, compared to 23% in FY25.

Current collections for FY25 (April–February): ₹2 trillion, against a full-year target of ₹3.6 trillion.

Transfers from the Centre:

Expected to rise by 10% in FY26, compared to 18% in FY25.

States’ Own Tax Revenue (SOTR):

Forecasted to grow by 14% in FY26, reaching ₹23 trillion.

This is in line with the 14% growth recorded in FY25.

Total Receipts:

Projected to grow by 12% year-on-year in FY26.

Central Government’s Net Tax Revenue:

Expected to grow by 11% in FY26 to ₹29 trillion.

FY25 Collection Status:
By February 2025, states had collected 75% of their total revenue target of ₹38 trillion.

However, non-tax revenue collections are significantly behind target, which may lead to states missing their overall revenue goals for FY25.

Fiscal Outlook:
While tax revenue growth remains steady, the underperformance of non-tax revenue and slower growth in central transfers may put pressure on the fiscal health of states in FY26.

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