How far has the GST Council worked as a model of cooperative federalism? Discuss in light of the 2025 rate rationalisation.

The GST Council under Article 279A brings together the taxing powers that Article 246A gives to both the Union and the States. The 2025 "Next-Gen" rate rationalisation was approved at the Council's 56th meeting. It shows that the Council can deliver consensus. It also shows how much fiscal risk the States now carry.

Design features that enable cooperation

• Shared decision-making: the Union Finance Minister chairs the Council and every State finance minister is a member. The Centre holds one-third of the voting weight and the States two-thirds, and decisions need a three-fourths majority. Neither side can act alone.
• Persuasive, not binding: in Union of India v. Mohit Minerals (2022), the Supreme Court held that Council recommendations have only persuasive value. Parliament and State legislatures keep their power to legislate, so the system depends on dialogue rather than command [4].

2025 rationalisation: cooperation in action

• Four slabs became two main rates, 5% and 18%, plus a 40% rate on sin and luxury goods, effective 22 September 2025 [1].
• The package was based on "consensus among all members" of the Council [1].
• The compensation cess was merged into GST rates on most goods [2], which made the structure simpler for both States and taxpayers.

Strains that limit the model

• Loss of fiscal autonomy: States cannot set their own rates, so a Council rate cut lowers every State's revenue at the same time.
• No safety net: the 2017 Compensation Act assured States 14% annual revenue growth for five years [3]. No similar guarantee came with the 2025 cuts.
• Legacy debt: the cess on tobacco continues only until the compensation loans and their interest are repaid [1]. That money cannot cover new revenue losses.
• Asymmetry: the Centre can also draw on income tax and has more room to borrow, so States are more exposed when rates fall.

The GST Council has largely worked as a model of cooperative federalism, and the 2025 consensus proves it. But the cooperation comes with unequal risk. Two steps would help: publishing State-wise revenue-impact estimates before the phase-two process reforms, and setting a clear, rule-based plan for taxing tobacco once the cess ends. These would turn pooled sovereignty into shared security, in line with India as a "Union of States" (Article 1) and the goal of Viksit Bharat.