Tue Jan 14 02:30:00 UTC 2025: ## States Increasingly Reliant on Central Government Funds: Data Reveals

**New Delhi, January 14, 2025** – A new data analysis reveals a growing dependence of Indian states on financial transfers from the central government, a trend that has intensified over the past decade. The share of states’ own tax revenue in their total revenue has consistently remained below 50%, significantly lower than the levels seen in the 2000s and early 2010s.

The analysis, based on data from FY16 to FY25, indicates that 23-30% of states’ total revenue came from central transfers, a significant increase from the 20-24% observed in the previous 15 years. Furthermore, 65-70% of states’ non-tax revenue in the last decade originated from central grants, compared to 55-65% in earlier periods.

This increasing reliance on central funds stems from a combination of factors. States have reportedly not implemented efficient tax collection strategies, leading to stagnant own tax revenue. Additionally, non-tax revenue, excluding central grants, has been declining. For instance, the share of non-tax revenue is projected to fall below 24% in FY25, the lowest in 25 years.

Kausik K. Bhadra, a PFM consultant with UNICEF, highlights the concerning implications of this trend. He notes that while state expenditure responsibilities have risen sharply, the stagnant own tax revenue hinders their ability to implement fiscal measures to boost economic demand. The analysis also shows a significant portion of states’ own tax revenue now comes from the State Goods and Services Tax (SGST), which has become a point of contention among some state finance ministers.

A state-wise breakdown shows a decline in the ratio of own tax revenue to Gross State Domestic Product (GSDP) in several states, including Tamil Nadu, Karnataka, Kerala, Bihar, Delhi, and Madhya Pradesh. While some states have seen improvements, the overall trend points to a need for more effective tax collection strategies at the state level. Mr. Bhadra concludes that current efforts to improve tax collection appear inadequate and sporadic. The analysis underscores the critical need for states to enhance their own revenue generation capabilities to reduce their dependence on central government funds.

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