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States Fiscal Space Faces Growing Negative Strain
States Fiscal Space Faces Growing Negative Strain
Context: Amid ongoing debates over shrinking fiscal space for states—highlighted recently after the 16th Finance Commission submitted its report—concerns have intensified over reduced tax devolution, rising cesses, and slowing GST revenues.
What Are the States’ Own Sources of Revenue?
- Tax Revenue: States mobilise tax receipts through State GST (SGST), State Excise, Stamp Duty & Registration Fees, Motor Vehicle Tax, and Electricity Duty.
- As per the RBI State Finances Report 2023, SGST alone accounts for nearly 45–50% of states’ own tax revenue, making it the most critical component.
- High-income states like Maharashtra and Karnataka derive a substantial share from stamp duty and excise due to stronger economic activity.
- Non-Tax Revenue: This includes royalties from minerals, user charges (power, irrigation), fees, and dividends. Mineral-rich states like Odisha and Chhattisgarh generate higher receipts from royalties, highlighted in the Economic Survey 2022–23.
How Can States Enhance Their Fiscal Space?
- Strengthening Tax Administration: Digitisation of property records (e.g., Karnataka’s Kaveri portal) and improved SGST compliance through AI-based detection can raise buoyancy without increasing rates.
- Diversifying Non-Tax Streams: User charges for urban services and rationalising power tariffs—as recommended by the 15th Finance Commission—can reduce fiscal stress.
- Broadening the Tax Base: Expanding coverage of motor vehicle tax, better valuation for stamp duty, and plugging leakages in excise can significantly enhance own revenue.
- Reducing Dependence on Transfers: States must improve revenue productivity to counter the recent decline in fiscal space noted in the transition from the 14th to 15th Finance Commission period.
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The Source’s Authority and Ownership of the Article is Claimed By THE STUDY IAS BY MANIKANT SINGH
