Revenue leversThe World Bank has estimated that India’s gross domestic product (GDP) will contract by 3.2% in 2020-21, resulting in a significant reduction in revenues realized by both the Union and state governments.
India’s federal fiscal structure allows for a system of sharing of revenue and expenditure between states and the Centre. The Finance Commission, an independent constitutional body, determines the criteria for this revenue sharing.
According to budget estimates for 2019-20, aggregating across all states, 52.5% of the states’ total revenue were to be generated on their own, while 47.5% came via central transfers.Within the states’ own revenue pie, about 85% comes from various taxes (Chart 1).