Critically evaluate the state-wise disparities in GST revenue growth and their implications for cooperative fiscal federalism.

Q. Critically evaluate the state-wise disparities in GST revenue growth and their implications for cooperative fiscal federalism. (15 marks, 250-350 words)

GST is a destination-based, ad valorem levy whose revenue tracks consumption and prices rather than production. Recent monthly data shows barely 16 States/UTs clearing the national average in post-settlement growth [1], indicating that headline buoyancy of over 15% conceals a widening inter-state divergence.

Extent and nature of the disparity - Growth is concentrated, not broad-based: high-consumption, urbanised States with dense real estate and business services activity outpace the average, while agrarian and low-income States lag [1]. - Import IGST grew far faster than domestic collections, so port-and-trade-linked coastal States gain disproportionately from external, not local, activity [1]. - Rupee depreciation and high WPI manufacturing inflation inflate ad valorem collections unevenly, favouring States with import-heavy consumption baskets [1].

Positive dimension for federalism - The GST Council (Article 279A) has functioned as a working forum of "pooled sovereignty", with a 75% weighted-vote rule giving States two-thirds voice [2]. - Disparity data itself is transparently published post-settlement, enabling evidence-based bargaining within the Council [1]. - The destination principle structurally corrects the old origin-based bias against consuming States.

Critical concerns - Fiscal autonomy loss: having surrendered independent indirect taxation, lagging States cannot compensate a revenue shortfall through their own rate action [2]. - Ending of the compensation-cess guarantee leaves slow-growing States exposed, straining Council consensus. - Manufacturing-heavy States face a structural squeeze — bearing industrial and environmental costs while revenue accrues at the point of consumption. - Equalisation now rests on the Finance Commission, whose horizontal formula rewards contribution to GDP alongside income distance — potentially reinforcing rather than offsetting divergence [3].

Thus, GST has advanced procedural cooperation but not yet fiscal convergence. The way forward lies in Council-led revenue-gap monitoring, targeted Finance Commission equalisation grants, and States improving their own compliance and formalisation base. Genuine cooperative federalism requires that shared taxation deliver shared prosperity, aligning with the constitutional promise of balanced regional development.

(~320 words)

Sources: 1. Press Information Bureau — GST revenue collection releases (monthly and annual, including State-wise post-settlement growth) — collection totals, growth rates, import IGST vs domestic split, State-wise dispersion 2. The GST Council — Goods and Services Tax Council (Article 279A, composition and voting) — Council structure, 75% weighted-vote rule, States' surrender of independent indirect tax powers 3. Sixteenth Finance Commission, Report for 2026-31, Volume I (Main Report) — horizontal devolution criteria including contribution to GDP and income distance