Federalism and Fiscal Relations: Centre-State Conflicts in India after GST Implementation

The introduction of the Goods and Services Tax (GST) in 2017 marked a turning point in India’s fiscal federalism. This paper examines the theoretical and qualitative dimensions of how GST implementation has impacted Centre-State fiscal relations, with a focus on emerging tensions and conflicts. Drawing on constitutional provisions, the institutional structure of the GST Council, the GST compensation mechanism, and case studies of Centre-State interactions, the study finds that GST’s promise of cooperative federalism has been tested by centralizing tendencies and financial disputes. States ceded significant taxation powers to the Centre under the new regime, raising concerns about eroded fiscal autonomy. The weighted voting system in the GST Council, which grants the Union government a dominant role, has further exacerbated tensions. Conflicts have been most evident in debates over GST revenue sharing and the compensation mechanism, especially during economic downturns when the Union government delayed promised payments to States. The Supreme Court’s 2022 ruling affirming the non-binding nature of GST Council decisions bolstered the constitutional principle that both Centre and States retain simultaneous legislative power on GST. This paper concludes that while GST aimed to unify India’s market in the spirit of cooperative federalism, its implementation has revealed fault lines in Centre-State fiscal relations. Addressing these challenges through institutional reforms and good-faith collaboration is essential to preserving the balance of India’s federal structure in the post-GST era.