Evaluate the role of the GST Council in balancing fiscal federalism with sectoral economic stimulus, citing the 2025 GST rate rationalisation.

The GST Council, created under Article 279A, is a joint Centre–State forum where the Centre holds one-third and States two-thirds of votes, with decisions needing a three-fourths weighted majority [1]. Its 56th meeting (September 2025) shows that the body can deliver sectoral stimulus, though not without straining fiscal autonomy.

Strengthening cooperative federalism

• Shared rate-setting: no single government can impose a rate; the weighted-majority rule forces negotiated consensus, and most decisions have historically been taken by convention rather than division [1].
• Uniform national market: a common rate structure prevents tax competition between States and ends cascading, benefiting producer and consumer States alike.
• Institutionalised dialogue: the Council is India's most active federal forum, giving States a continuous voice in indirect tax policy [1].

Effectiveness as sectoral stimulus — the 2025 rationalisation

• Rates on small cars, two-wheelers up to 350cc, three-wheelers, buses and goods vehicles were cut from 28% to 18%, effective 22 September 2025, with luxury/sin goods retained at 40% [2] — a progressive, consumption-targeted cut.
• Slab simplification to a principal 5%–18% structure reduced classification disputes and compliance friction [3].
• Transmission was visible: August 2026 auto retails were the highest-ever for an August, up about 17.5% year-on-year, with alternative powertrains (CNG, hybrid, EV) outselling petrol at 41.95% vs 40.85% of passenger vehicles [4], aiding both demand and the energy-transition goal.

Limitations

• Rate cuts shrink the divisible pool, and with compensation cess wound down, States bear revenue loss without an assured cushion [3].
• Pre-announcement deferral of purchases created a demand "air pocket" in late 2025, so headline growth is partly a base effect [2][4].
• Recommendations being non-binding (post-Mohit Minerals) risks divergence if consensus weakens.

On balance, the Council has proven an effective stimulus instrument while preserving federal consultation. Pairing future rationalisation with a transparent, formula-based revenue-protection mechanism for States and prior announcement of transition dates would make the balance durable, keeping GST faithful to the cooperative-federalism promise of Article 279A.