Goods and Services Tax (GST)

Centre should address States’ concern on GST transfers


Mains Paper 3: Economy | Issues relating to planning, mobilization of resources, growth, development and employment.

From UPSC perspective, the following things are important:

Prelims level: GST Transfers

Mains level: Read the attached story


  • The GST Council was designed as a federal body between the States and the Centre.
  • The States have been complaining that the Centre is taking advantage of the arrangement and is delaying the dues to be paid to the States.

Concern of the states

  • The States have a feeling that the Centre is taking advantage of the current arrangement.
  • The Centre is supposed to give money to the States, but that distribution is taking time and accounts are not being finalised.
  • There is a feeling that the Centre is trying to keep the money longer than required.
  • The Finance Commission (FC) awards are more in favour of the poorer States, while the non-FC expenditures actually don’t go to poorer States.
  • The empirical evidence showed that, while the transfers mandated by the Finance Commission from the Centre to the States had been to the benefit of the poorer States, the discretionary spending allowed by the Centre had, in fact, only been to the benefit of the richer States.
  • The explanation is possibly that political bargaining is better for the forward States, or their absorption capacity is better.

Recasting NITI Aayog

  • On the future roles of the FCs and the NITI Aayog, there was a need for a body such as the FCs to make sure that there was a stable formula for transfers to the States.
  • There is a need for a federal body, which is trusted by both the States and the Centre that would provide a forum for the political bargaining that was behind the allocation of other funds to the States, such as grants in aid.
  • The right way of going about it is that there should be a political forum and expertise also, which will arrive at the criteria for such transfers.
  • That body should come under the confidence of both the States and the Centre, and not just identify with the Centre.
  • If the NITI Aayog were to occupy this role, then the first thing is for it to get the trust of the States.
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