Business Today - - COVER STORY | COLUMN - By Is­sac Thomas / Fi­nance Min­is­ter, Ker­ala

The way GST has been de­signed and im­ple­mented shows how the fed­eral struc­ture in In­dia is sys­tem­at­i­cally un­der­mined. The ma­jor is­sue in the fis­cal fed­er­al­ism in In­dia is the fis­cal im­bal­ance be­tween states and the cen­tre.

The re­source mo­bil­i­sa­tion po­ten­tial is con­cen­trated with the Cen­tre while so­cio-eco­nomic re­spon­si­bil­i­ties are with states. Now, over time what has hap­pened is that the states’ po­ten­tial of re­source mo­bil­i­sa­tion has been un­der­mined. If you look at taxes which have been sub­sumed by GST, 60 per cent of the taxes were col­lected by states and 40 per cent by the Cen­tre. Though in some years, it was 55:45 in favour of states, but states share has al­ways been higher. I al­ways wanted the rate split to be 60:40, but what we have got is a 50:50 di­vide, which is an­other blow to states.

There should be some dis­cre­tionary power with states for bet­ter re­source mo­bil­i­sa­tion as long as it did not af­fect the na­tional tax sys­tem. Now, SGST is one such tax com­po­nent which has been im­posed on goods and ser­vices out­side the in­ter­state trade. There­fore, it has al­ways been a de­mand from peo­ple like me that there should be a pro­vi­sion of a narrow band of tax rate un­der SGST so that states can tweak it as per their need.

Let the state have some say in what way they want to grow. For ex­am­ple in Ker­ala, we have cho­sen a path of growth which em­pha­sises so­cial sec­tor spend­ing very sim­i­lar to Nordic coun­tries. Now if you take the tax/GDP ra­tio of those coun­tries, it is any­thing be­tween 35 per cent and 50 per cent. In In­dia, it is around 20 per cent. So we have cho­sen a path which re­quires greater re­source mo­bil­i­sa­tion. I agree with you that you should not dis­rupt the na­tional tax sys­tem but why should I be pre­vented then from making my choices. Deny­ing this is tan­ta­mount to cur­tail­ing the fis­cal do­main of the states.

There is an­other is­sue, where states’ pow­ers have been un­der­mined. It has al­ways been a unan­i­mous de­mand of the states that they should be al­lowed to tax deal­ers with rev­enue up to 1.5 crore. The logic for the same was that en­ti­ties with rev­enue be­low that were ex­empted from ex­cise du­ties un­der the pre­vi­ous tax regime. But now th­ese deal­ers have been split be­tween states and the cen­tre. So GST has re­sulted in fur­ther un­der­min­ing of states power, which a sen­si­tive cen­tre could have avoided.

If you look through the meet­ings of em­pow­ered com­mit­tees right from the mo­ment it started, many states had sup­ported GST think­ing that this was an oc­ca­sion to rec­tify some of the is­sues states were rais­ing since the in­tro­duc­tion of Value-added Tax (VAT). So, I am not against na­tional tax, but this is me­chan­i­cal im­ple­men­ta­tion of na­tional tax.

So, you have on one hand FRBM Act, which cur­tails your ex­pen­di­ture and you have on the rev­enue side GST and also re­stric­tions on bor­row­ing. The gov­ern­ment wants more re­stric­tions on state bor­row­ings through the 15th Fi­nance Com­mis­sion. That is again ero­sion of fis­cal pru­dence of states. This is not co­op­er­a­tive fed­er­al­ism.

The only pos­i­tive is that there has been a spir­ited give and take within the GST Coun­cil, all the more par­tic­u­larly due to the na­ture of in­ter­ven­tion by fi­nance min­is­ter Arun Jait­ley. I hope that will con­tinue and de­ci­sions would not be ar­bi­trar­ily made in fu­ture.

But as things move on, this may change. As told to Di­pak Mon­dal

The re­source mo­bil­i­sa­tion po­ten­tial is con­cen­trated with the Cen­tre while so­cio- eco­nomic re­spon­si­bil­i­ties are with states.

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