Inadequate revenue sources, uncontrolled growth of current expenditures and failure of central transfers to grow as fast as the states ‘own revenues’ have been the major sources of fiscal imbalance at states level. The existence of nexus in between NTR and SDP can be examined in several ways like growth rates relating to SDP and NTR, proportion of NTR to SDP, several policies relating to accelerate SDP and NTR, etc. So far as inter-state non-tax revenue and state domestic product in India is concerned, limited studies have been done. Present study tries to explore the stationarity and cointigration between Non Tax Revenue and State Domestic Product of twenty major states of Indian federal system in panel data structure for the period 1980-81 to 2011-12.The objectives of the study are: to test the panel stationary of Domestic Production and Non Tax Revenue of the major states of the Indian federal system for the period 1980-81 to 2011-12 in terms of total and growth rate and to test the panel cointegration in between SDP and NTR for the Indian federal system of twenty major states state for the period 1980-81 to 2011-12 in terms of total and growth rate. In the present study data has been taken from Handbook of Statistics on Indian Economy and State Finance for twenty major states; Andhra Pradesh, Assam, Bihar, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Nagaland, Orissa, Punjab, Rajasthan, Tamil Nadu, Tripura and Uttar Pradesh (Handbook of Statistics on Indian Economy 2011-12).In the present study, LLC (2002) and IPS (2003) tests of stationarity have been used. Kao (1999) test of panel cointegration shows that the SDP and NTR and NTR and SDP for the twenty states for the period under study are cointegrable. The results of the study suggest that state domestic product of the states are causing the non tax revenue of the states and the non tax revenue of the states are also causing state domestic product of the states for Indian federal system.
