Greater share: States deserve a bigger share of central taxes in post-GST era, Pg6

PM Modi at the 10th NITI Aayog Governing Council Meeting urged states to work as “Team India,” but the editorial critiques the asymmetry in Centre-State fiscal relations.

• GST Council and NITI Aayog meetings are infrequent; the former has not met for over five months, despite mandatory quarterly meetings.
• Tamil Nadu CM M.K. Stalin proposed raising the States’ share in central taxes to 50%, from the current 41%.
• GST has subsumed many state-level indirect taxes, and despite modest recovery in State tax performance, pre-GST levels were only recently surpassed.
• States' own tax revenue as a share of GSDP rose from 6.6% (2017-18) to 7.2% (2024-25), but compensation for GST shortfalls has ended.

Detailed Insights:

• Structural Imbalance: - While GST was expected to enhance overall revenues, many states have seen reduced fiscal autonomy, with dependence on compensation from the Centre. - The one-way structure of fiscal federalism undermines cooperative federalism ideals. - Forum Frequency Criticism: - NITI Aayog and GST Council are key federal dialogue platforms, but infrequent meetings reduce policy responsiveness. - States often voice individual issues when they get a chance, reflecting the lack of institutional collaboration. - Sub-Groups for Federal Collaboration: - Proposal by AP CM N. Chandrababu Naidu to form three sub-groups of states—on GDP growth, leveraging demographics, and tech-driven governance. - Seen as a means to streamline regional input and foster innovation in Centre-State cooperation. - Need for Reconsideration of Tax Share: - Stalin’s call for increasing the vertical devolution is rooted in the erosion of state revenue capacity post-GST. - Fairness argument: Since GST curtailed state taxing powers, enhancing their share of centrally collected taxes is justified.

Mains Mock Question:

In light of the GST regime and the decline in state-level fiscal autonomy, critically evaluate the demand for increasing the states’ share in central taxes. How can cooperative federalism be revitalized in India?