GST and Indian Fiscal Federalism: The Relevance and the Implications | Original Article

ABSTRACT:

India is at an advanced stage of Goods and Services Tax (GST) implementation. This paper is an attempt to provide a bird’s eye view of the rationale, relevance and implications of GST for India fiscal federalism. The economic rationale of GST lies in removing the distortions and complexities of a cumbersome indirect tax system that the country has been living with for the last several decades. This has been a major drag on India efforts to attract foreign investment and compete in the global market.GST create a common market across the country and accelerate economic growth. The benefits of GST include widening of the tax base of both Centre as well as states and significant improvement in the ease of doing business. At the same time, implementation of GST has generated apprehensions about inflation and loss of revenue to manufacturing states. GST has major implications for the future Centre-State financial relations (Article 280). All these issues will have to be discussed and debated time to time in the proposed GST Council. Fiscal federalism can best be understood as the economic counterpart to political federalism. It is concerned with assigning functions to different levels of governments, and providing appropriate fiscal instruments for carrying out these functions.