Cooperative Federalism Needed for GST Success – UPSC GS3

  • The GST Council is troubled with mistrust due to lack of cooperative federalism between centre and states.
  • Covid induced Economic crisis is hampering state’s revenues while uncertainty in GST revenue prevails.
What are the issues hampering Cooperative Federalism in India?
  • Centre backtracking on its promise to pay guaranteed GST compensation to the States during Covid 19 situation.
  • Stringent policy conditions by centre to grant approval to States for extra borrowing in the middle of the pandemic.
  • Centre shifting its responsibility on states over the procurement of Covid vaccines. It has resulted in a high price burden on states.
  • Unilateral decision to implement farm laws.
  • Sudden lockdown imposed by the Centre with no consultations with the States that affected millions of migrant workers.
  • Centre is levying cess that gathers significant revenues for the Centre without sharing them with the States.
  • Centre’s recent Government of NCT of Delhi (Amendment) Act, 2021 that deprived the elected Delhi government of its governance powers.
All these issues are hampering Cooperative Federalism in India.
What are the issues that are affecting the GST mechanism in India?
  • GST was expected to deliver economic efficiency gains, improve tax buoyancy and collections, boost GDP growth, and achieve a greater formalisation of the economy.
  • However, three years after its launch, GST had failed on all those promises. For instance, the 15th Finance Commission report formally acknowledges that GST has been an economic failure that did not deliver on its early promises.
  • Problems in GST:
    • Multiple rate structure.
    • High tax slabs.
    • Complexity of tax filings
    • Erosion of ‘trust’ and ‘trustworthiness’ between the States and the Centre.
    • Uncertainty in GST revenues compounded with the loss of fiscal autonomy of states possess a threat to States finances.
Proponents of GST failed to factor in India’s unique political economy and its ramifications. Striking a balance among the diverse interests of India’s numerous parties in a larger political climate is significant along with the extension of revenue guarantee for the States for another five years to strengthen the GST mechanism in India.
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