GST Classical Example of Cooperative Federalism: CJI

Syllabus :GS 2/Governance/GS3/Economy 

In News

• Chief Justice of India D Y Chandrachud emphasized the introduction of the Goods and Services Tax (GST) as a “classical example of cooperative federalism.

Federalism In India

• The Founding Fathers of India established a “Union Constitution” that reflects a federal structure with a strong central government. 
• Federalism in India involves a sharing of power between the central and state governments, where both levels are empowered and co-equal. 
• Dr. Ambedkar emphasized that India’s Constitution defines it as a Union of States, not a loose collection of independent entities.

Co-operative Federalism and GST 

• Cooperative federalism involves the Centre and states working together towards development while acknowledging the importance of both collaborative discussions and “interstitial contestation” between the two levels of government.
• Key institutions like the NITI Aayog, Finance Commission, and GST-Council play crucial roles in policy making and modern federalism in India, underpinned by principles of equity, capacity, stability, and growth. 
• The 101st Amendment, introducing the Goods and Services Tax (GST), marked a significant advancement in cooperative federalism by enabling both the Centre and States to levy taxes on goods and services concurrently, thus maintaining the federal structure.
  • This cooperative approach involved the Centre relinquishing exclusive tax powers on manufacturing, while States gave up exclusive sales tax powers, facilitating uniformity in indirect taxation. 

Importance 

• The collaborative effort led to harmonized GST laws, common definitions, procedures, and compliance mechanisms across the country, effectively reducing compartmentalization in taxation.
• Cooperative federalism aspect of GST ensures equal representation of states in decision-making processes, with most GST Council decisions reached by consensus.
•  GST significantly contributes to state revenues, with states receiving 100% of the State GST (SGST) collected and approximately 50% of the Integrated GST (IGST).

Issues and Challenges 

• Over time, tensions have emerged, particularly regarding GST compensation and the Council’s decision-making process. 
• States began to express concerns about delayed compensation, especially during the economic downturn caused by the COVID-19 pandemic, leading to accusations against the Centre for insufficient support.
• Opposition-ruled states perceive the GST Council as dominated by the Centre, which holds one-third of the voting power.

Conclusion and Way Forward 

• Healthy federalism requires negotiation and consensus, especially in a diverse country like India.
• GST intends to transform India into a true economic union, with the aim of ‘One Nation, One Tax, One Market’.  
• The GST reform’s success depends on open dialogue and collaborative decision-making.
• The Centre must foster a consultative approach to strengthen fiscal federalism and address emerging conflicts.
•  Federalism should be assessed not only on legislative powers but also on its ability to uphold democratic ideals of equality, liberty, dignity, and fraternity.

Source :ET