GST: Cooperative federalism
President Pranab Mukherjee on Thursday approved the Goods and Services Tax Constitution Amendment Bill. Before the president gave his assent, the Bill needed to be ratified by at least half the total number of states. This development comes a day after Finance Minister Arun Jaitley said that the Centre was “running against time” to implement GST before the April 1 deadline. The new tax regime is expected to bring about widespread changes to the Indian economy by replacing the multiple commercial taxes currently levied with a single one. Reports state that the Constitution Amendment has been ratified by 20 states so far.
The focus now shifts to two follow-up pieces of legislation that will govern the way GST is implemented and how tax rates are set. Indications of the challenges that lie ahead came in the form Bengal Chief Minister Mamata Banerjee’s decision to put the Bill on the back burner before the State Assembly was scheduled to discuss it. In spite of clear ideological differences with the BJP, Mamata is not opposed to the idea of GST. But there are indications that she is likely to protest against the “treatment meted out to non-BJP state governments”.
The NDA government has done little to protect the idea of "cooperative federalism" despite espousing it on a number of occasions. Tearing into the Centre over the recent rationalisation of Centrally Sponsored Schemes (CSSs) last month, Banerjee argued that such unilateral initiatives undermine the basic authority of state governments in a country that has the principle of federalism enshrined in its Constitution. However, her bigger grouse is that the Modi government is trying to control how the states spend their money, referring to an online tool being pushed by the Union government that will allow it to track how states are spending their money right till the gram panchayat level.
Without taking non-BJP governments into confidence, the Centre cannot unilaterally decide to micro-monitor how state governments allocate the money. One has little need for a state government if the Centre decides to monitor its expenditure patterns. The Union government’s continuous arm-twisting in financial matters has now reached a point that it cannot be brushed under the carpet. Although the Bengal government’s decision not to ratify the GST has not derailed the Centre’s plan to ratify the Bill, it might make the consensus on the framework of the tax reform a bit difficult. In the real spirit of cooperative federalism, the Trinamool government is likely to play hardball during the negotiations of the GST rate to ensure that its demands are met.