Goods and Services Tax (GST)

Federalism, now a partisan internal dialogue


From UPSC perspective, the following things are important :

Prelims level : Federal structure

Mains level : Paper 2- Evolutio of Centre-State relation in India

Against the backdrop of the ongoing tussle between the states and the Centre over the issue of GST compensation, the article analyses the evolution of federalism and power-sharing in India.

GST and federalism

  • At the first sign of stress, the nation unified in a singular system of taxation (GST) turned into a policy of every-state-for-itself.
  • Evidence of seriously miscued revenue estimates without pragmatic tax rate, was accumulating at an alarming pace.
  • The Comptroller and Auditor-General of India (CAG) recently revealed how a cess meant to remedy shortfalls in GST yields, was retained in central government revenues, in violation of all applicable norms.
  • This revelation does little to build trust between the Centre and the States at a time when the States’ facing lack of resource and the central government is advising them to borrow.
  • Some states believe that the onus of borrowing should rest with the central government.

Higher borrowing limit for states with conditions

  • The central government sanctioned a higher borrowing limit for States through the current year.
  • In the bargain, it imposed conditionalities:
  • 1) Enforcing a singular standard for the implementation of policies across a vast and diverse country.
  • 2) Improving India’s ranking as a place for “doing business”.
  • States will have unconditional access to borrowings equivalent to half a percentage point of their gross output.
  • But, subsequently, every tranche of a quarter point will be premised on progress in implementing the “one nation, one ration card” scheme, and improvements in the “ease of doing business”.

Federalism in India

  • Aside from the contents and definitions sections, the word “federal” occurs in only one operational article of the Indian Constitution, in reference to the apex judicial body created in colonial times.
  • When this body was transformed into the Supreme Court at the moment the Constitution came into force, the word seemingly lost all operative value.
  • The distribution of powers and responsibilities between various tiers of the governmental system, was achieved without explicit recognition of federalism as a governing principle.
  • In actual operational terms, the relationship of Centre and States followed different paradigms through various phases of politics.
  •  At the time of Independence, the distribution of powers between Centre and States was transformed into an internal discussion of the Congress.

Evolution of power-sharing and politics

  • The “Congress system”, as the political scientist Rajni Kothari called it, was seen at one time to have sufficient internal flexibility and resilience to absorb all factional pressures.
  • The first challenge came from the cultural terrain, compelling a reluctant national leadership to accept linguistic reorganisation of States.
  • And then, as ambitions of nation-building through rapid industrialisation resulted in the possibility of a non-Congress politics.
  • The Congress lost power in a number of key States in 1967.
  • The polity moved into a new phase when politics was about “waves” at the national or state level either in favour of, or against the Congress.
  • From 1989 onwards, politics settled into another distinct phase, when outcomes at the national level were the resultant of very separate State-level results.


Though federal structure could not be free from Centre-State power struggle, that struggle should not come into the development of the nation. In this context, it is the responsibility of the Centre to address the issues facing the state amid pandemic.

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