In the study of state finances, non-tax revenue has so far been the neglected area. This paper attempts to examine the performance of non-tax revenue of Indian states. It estimates the growth of non-tax revenue of 16 major Indian states over a period of 18 years. It examines the determinants of non-tax revenue using panel data analysis with Fixed Effect Model (FEM). Based on the hypothesis that it is the socioeconomic activities of the states that provide the base for raising revenue, the paper analyzes how the economic development of the states determines the performance of their own non-tax revenue. It concludes that the difference in socioeconomic activities of individual states significantly influences the generation of non-tax revenue of the state, as the state-specific intercepts are found to be statistically significant for each state.

Under the Indian Constitution, the state governments are given certain fiscal powers (State Fiscal Reforms in India, 2004). In addition to the transfer of revenues obtained from the Center, the state governments also generate resources on their own, both from tax and non-tax revenue. The taxes levied by the states are: agriculture tax, Value-Added Tax (VAT), stamp duty, vehicles tax, entertainment tax, electricity duty, state excise duty, etc. The non-tax revenue obtained by the states mainly comes from PSUs, interest receipts, animal husbandry, mining and so on. Non-tax revenue, which is collected in the form of fees and user charges is mainly acquired from education, sports, arts and culture, medical and public health, family welfare, water supply and sanitation, housing, urban development, social security and welfare and other social services. Although the share of non-tax revenue has been very less in Indian states for almost all the years, this paper examines how the state's socioeconomic activities influence their non-tax revenue performance.

A state generates its revenue from the social and economic activities undertaken by it within the state, during a given year. Inevitably there will be variations in the geographical conditions, sociocultural environment, industrialization, agricultural productivity, urbanization, and monetization, which lead to diversity in economic performance of each state. The per capita income of Punjab, the richest state, is five times higher than that of Bihar, the poorest state (Ahluwalia, 2000, p. 3). States like Gujarat and Maharashtra enjoy heavy industrialization and attract greater investment, while Assam and Bihar are not so economically well-developed and their economies rely more on the endowment of natural resource such as coal mines, tea gardens, etc. Agricultural activities, industrial output, trade, modernization and urbanization, socioeconomic services, social infrastructure, etc., all provide a base to impose tax and collect user charges. Keeping the tax rate, user charges structure and administrative efforts unchanged, growth in the base of the tax and non-tax revenue may lead to expansion of the states' revenue. Moreover, diversity in socioeconomic performance may lead to variation in the revenue performance among Indian states. With this prior explanation, this paper examines the relationship between divergence in non-tax revenue performance with the variant economic performance among Indian states. It tests the hypothesis that the economic growth of 16 major states of India, selected under this study is an important determinant of variations in the states' non-tax revenue generation capacity.

Public Finance, Non-Tax Revenue, Fixed Effect Model, FEM, Value-Added Tax, VAT, Gross State Domestic Product, GSDP, National Institute of Public Finance and Policy, NIPFP, Own Non-Tax Revenue, ONTR, Fiscal Powers, Agriculture Tax, Social Security, Social Infrastructure, Economic Growth.