States’ Revenues Declining Despite Rising GDP, Pre-Budget Meeting Sees Major Demands from States

With Finance Minister Nirmala Sitharaman set to present the Union Budget on February 1, state governments have raised significant demands from the Centre, citing declining revenues despite robust GDP growth.

Rising GDP, Falling State Revenues
India’s economy is projected to grow at 7.4% in the current fiscal year, following two consecutive quarters of impressive GDP growth. However, state governments claim that their revenues are not keeping pace with the country’s overall economic expansion.

States receive 41% of the Centre’s tax revenue, but they do not get a share of cesses and surcharges. In a pre-budget meeting with the Finance Minister, several states—including those ruled by opposition parties—urged special assistance to address the gap in their revenues.

Impact of GST Rate Cut
On September 22, 2025, GST rates were reduced. According to SBI Research, this could lead to a total loss of ₹1.11 lakh crore for the Centre and states combined. However, the lower rates are expected to boost consumption, which may partially offset the revenue loss.

Cesses and Surcharges
States highlighted that while they receive a fixed share of the Centre’s tax collections, they do not benefit from cesses and surcharges. They requested that a portion of these revenues be allocated to them.

Central Schemes and Funding
States also called for a larger share in central schemes, an increase in borrowing limits, and special packages for natural disasters.

Rising DBT Expenditure
Many state governments are implementing election promises through Direct Benefit Transfers (DBT) to citizens. States expressed concern that rising expenditure on DBT schemes could strain their revenues and affect developmental projects.

The pre-budget discussions signal that states are seeking greater fiscal support and flexibility from the Centre to meet growing expenditures and maintain development momentum.