GST governance issues - A summary

A summary of how the GST evolved, and the direction it is taking now

GST governance issues - A summary

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• GST in India: The supreme GST body in India is the GST Council, made up of 31 representatives of States and UTs, in addition to the Centre. Its workings are entirely political now, with 17 of the 31 belonging to one party, the BJP.
• Begging to meet: States are dependent on the GST for more than half their total revenues, but the 43rd meeting in May 2021 took more than six months to be held. The ruling regime's representative remained silent throughout, as opposition party-ruled states kept begging. "The economic surely is political" now.
• Cooperative federalism: Kerala has been bitter about not getting its due guaratneed GST compensation, from the centre. West Bengal is experiencing arrest of its Ministers by union agencies, after the elections. Chhattisgarh was upset with stringent borrowing conditions in 2020, in the middle of pandemic. Maharashtra just paid a much higher price for vaccines than the Centre. Punjab's pain on new farm laws is well-known. Rajasthan's returning migrant workers due to sudden lockdown in 2020 is fresh in memory. Tamil Nadu has had issues with non-shareable cesses, that Centre keeps imposing. Delhi govt. lost its supreme power to rule, as LG took it away in a new law. All this is definitely not cooperative federalism!
• What it truly means: The Union needs to understand that cooperative federalism goes way beyond merely fiscal federalism. It includes political, governance and administrative federalism too.
• Trust and trustworthiness: The GST Council is not just a mechanical economic body, but needs trust between Centre and States to function well. In any heterogeneous group of participants in an economy, "altruism" brings the best outcome for all, and "spite" the worst. The GST Council today reeks of vendetta politics.
• Present breakup: The 17 BJP and 14 non-BJP members represent 50% of India's population each, and the non-BJP group represents 60% of GST collection and 63% of India's GDP. Elections to 7 states are scheduled for 2022, and the numbers may change again. But the GST Council needs to be totally insulated from all this.
• What 15th FC said: It noted that GST failed economically to deliver on its early promise. Even by Jan 2020, the GST had failed on its basic promise - higher economic efficiency, better tax buoyancy and tax collections, higher GDP growth, more formalisation.

1. The complex, multiple rate structures, high tax slabs and complex tax filings have led to serious problems.
2. Today's GST suffers from trust and trustworthiness issues as well, between Centre and States.
3. Small fixes won't work while being essential and delayed already (like rationalisation of rate slabs, and streamlining of GST portal)

• Fiscal autonomy: The states surrendered their fiscal autonomy for GST, chasing the elusive economic gains. GST just cannot work in an India torn apart by political vendetta and hate. It needs true federalism not bitter competition, to succeed.
• The 14% promise: The centre promised all states an annual growth of 14% in revenues, to cut risks. That guarantee ends in July 2022, and unless renewed, the entire GST will simply collapse. They have no incentive to continue, given the losses they'll be making then. The motivation to be part of the fiscal union, when the Centre is bitterly competitive and non-cooperative in major issues (e.g. lockdown at 4 hrs notice), is non-existent.
• Not about technology: The challenge is primarily not technocratic, but about a compassionate balancing of competing interests. GST was built on the promise of cooperation, but is being run with anger and spite. Unless a radical shift happens, GST may soon come to a sudden end.
• EXAM QUESTIONS: (1) Is the imminent end of GST near? What factors may tear the GST fabric apart? What can be done to hold it back? Explain. (2) Why did it become extremely difficult for the States to run their fiscal show, once pandemic started? Explain with reference to GST. (3) What are the various aspects related to the original promise of GST, that face challenges in a slowed economy? List and explain.

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