Research Report

ICRA estimates the combined revenue deficit of 15 state governments in FY2027 at Rs. 2.8 trillion, belying the sharp improvement indicated in the BE (Rs. 1.3 trillion) relative to the level included in the FY2026 PA (Rs. 2.6 trillion). The pace of growth of the combined SOTR of the sample states is forecast to improve to 11.9% in FY2027 (albeit half the 22.3% YoY growth in BE) from 7.4% in FY2026 PA, benefitting from a healthy pick-up in SGST and sales tax collections, both of which together contribute over 60% to the SOTR. Moreover, several sample states’ tax devolution would report a double-digit YoY expansion in FY2027 from the uniform 8.2% growth displayed by all states in FY2026 PA. This reflects the transition impact of horizontal devolution framework led changes in the inter-se shares of states by the 16th FC in the first year of its award period in FY2027 from FY2026, the last year of the 15th FC award period.

Revenue deficit to remain around 0.8% of GSDP in FY2027: ICRA projects the combined revenue receipts of the 15 states to rise by 10.9% in FY2027, lower than the optimistic 23.5% expansion indicated in the BE.

Capex to expand by a healthy 14.1% in FY2027: ICRA projects a pick-up in the pace of expansion in the combined capex of the sample states in FY2027 to 14.1% (Rs. 8.7 trillion), from 10.6% in FY2026 PA, while trailing the high 30.5% increase indicated in the BE.

EXHIBIT: Key combined fiscal indicators of 15 states for FY2026 PA and FY2027 BE