UPSC DAW Mains Answer Writing 27th September 2025

UPSC DAW Mains Answer Writing 27th September 2025

Question

The functioning of the GST Council, intended as a cooperative federal body, has increasingly become politicised, often leading to combative federalism. Critically examine this trend in the context of Centre–State fiscal relations.  

Model Answer

Introduction 

  • The GST Council (Article 279A) was envisioned as an institutional mechanism for cooperative federalism in India, balancing Centre and States in indirect taxation.However, recent disputes over compensation cess, revenue sharing, and fiscal autonomy have revealed trends of politicisation and combative federalism, straining Centre–State trust. 

Body ::  

  1. Constitutional Design:GST Council is a joint forum chaired by the Union Finance Minister, with State Finance Ministers as members. 

  2. Compensation Dispute:States were promised 14% annual revenue growth compensation till 2022 under GST (Compensation to States Act, 2017).delayed payments sparking disputes. 

  3. Politicisation Trend:Ruling-party States often align with the Centre, while opposition-ruled States accuse the Centre of “fiscal coercion.Example: Kerala & Telangana vs Centre on compensation delays. 

  4.  Shrinking Fiscal Space: 

  5. States’ share in the divisible pool = 41% (15th Finance Commission). 

  6. However,cesses & surcharges (not shareable) form nearly 20% of Centre’s gross tax revenue (2023-24), reducing actual transfers to ~30%. 

 5.Weakening Trust:States argue that GST eroded their tax sovereignty (e.g., liquor & petroleum outside GST),The dependence on the Centre for compensation undermines fiscal autonomy of the States. 6.Judicial Relief :: In Union of India v Mohit Minerals (2022), SC ruled GST Council’s decisions are recommendatory, not binding, reinforcing States’ fiscal rights. 7. Centre–State Fiscal Imbalance:India’s fiscal federalism is asymmetric: Centre raises ~60% of total revenues but States bear ~62% of total expenditure responsibilities. 8. Rise of Combative Federalism:Frequent clashes in Council meetings, with States expressing dissent or broken consensus,Recently,The GST Council in its latest meeting did not discuss compensation dues for States despite repeated demands, especially from Kerala and Telangana 9.Partisan Lines:Federal debates are increasingly shaped by party politics rather than federal consensus, weakening the Council’s credibility. 10.International Comparison:In federations like Canada & Australia, fiscal councils are consultative, but trust-building is stronger due to stable compensation frameworks. 11.Economic Implications:Delayed consensus leads to tax uncertainty, affecting businesses and investment climate. 

Way Forward :: 

  1. Statutory permanent dispute resolution mechanism under GST Council. 

  2. Clear compensation formula beyond 2022 to ensure policy  predictability. 

  3. Greater role for Finance Commission in harmonising fiscal transfers. 

  4. Strengthen State capacities for tax administration. 

Conclusion 

The GST Council was designed as a platform of cooperative federalism, but rising politicisation and fiscal centralisation have made it a site of combative federalism.To restore balance, India must institutionalise transparent compensation mechanisms, strengthen fiscal autonomy of States, and rebuild trust-based consensus politics, making the Council a true forum of federal cooperation.