India’s GST Paradigm and the Trajectory of Fiscal Federalism: An Analysis with Special Reference to Kerala

Abstract

Since the design and implementation of GST is often perceived as a difficult task, especially in developing countries with federal constitutional structures, the introduction of GST in India in 2017 has been considered a great achievement. Against this background, this article explored the characteristics of India’s GST paradigm from a fiscal federal perspective, its implementation and the tax performance of States under GST. The Indianized GST paradigm, built on the edifice of GST Council and three key pillars of revenue neutrality, tax sharing between the Centre and the States and the provision for GST compensation, has been designed towards fostering cooperative federalism. Our analysis revealed that the revenue neutrality has not been ensured and there were also issues with tax sharing and GST compensation. Both the edifice and the pillars of GST, therefore, were fraught with fault lines in both the design and implementation. Tax effort of the States did not increase indicating that GST has not been helpful in improving the revenue position of the States. Although India’s GST paradigm was destined to foster cooperative federalism the outcomes appear to lead us towards coercive federalism.

JEL Codes: H71, H73, H77