HOW GST USURPED THE SOVEREIGNTY OF NATION STATES IN INDIAN UNION

SUBHEADING:GST regime has already paralyzed the economic progress of Indian Union and it has to be rescinded for any tangible economic growth of this country in the future

The COVID-19 pandemic is ravaging the world for more than two months now and it has already created deep fissures in the world economy, the depth of which is evident from the warning issued by the IMF about the imminence of a Global Financial Crisis¹. The health crisis has already wreaked havoc in many European countries and the United States, to an extent that has resulted in the hitherto unforeseen assistance acquired by the US from its arch military rival Russia² and economic rival China³, revealing the afflictions of the health institutions of world’s super power during the handling of this crisis.

As the pandemic is tightening its grip over the global population, there’s an emergence of a worrisome trend in the recently published data about the corona affected patients in Indian Union. Drifting away from the global normal, the corona virus is affecting a substantially younger population in the subcontinent⁴. This is a serious threat as the subcontinent’s population has a huge proportion of people in that age group. Considering the adverse conditions of the situation across the Indian Union and the assistance shared across various countries, one ought to expect at least the same level of cooperation inside India between State and union governments, or a better cooperation, bearing the density of the population and the nature of medical infrastructures in mind. But the reality is dreadful and it is getting worse with each passing day as the common populace is failing to understand the union government’s proclivity for devouring the economy and wealth of every state in the union even in such disastrous times. The governments of most affected states such as Tamil Nadu, Maharashtra, and Kerala are in a desperate need of funds to contain any further escalation of the crisis. But the union government is declining all their requests for help. The Union government was withholding the requested funds by the states until an external agency, the world bank, released $1 billion to help the relief measures in the country⁵, thus pressuring it to release a scant amount of 17000 crores⁶ in SDRF; yet abstaining from distributing the pending GST compensation funds to the respective states.

The funds released by a multilateral organization acting as a precursor for the union government to react while the country is facing a health disaster of unprecedented magnitude exposes the exploitative mindset of the rulers in Delhi.

So, why are Chief Ministers of the states awaiting the release of funds by the union government? Can’t they create the required fiscal space for handling their economic conditions?

The answers to these questions lie in the implementation of a heinous tax regime through the GST act that ultimately torn apart the very fabric of this country.

TRANSFORMING CHIEF MINISTERS FROM RULING HEAD OF THE STATES TO JUST A NOMINAL HEAD

Arguably, the greatest blow to the quasi-federal nature of the governance in Indian Union is the Goods and Services Tax (GST) scheme that came into force on July 1^st of 2017. It legalised the despoilment of the wealth of various states by Delhi and rang the death knell to the sovereignty of nation states in the union, effectively and officially converting India into the largest banana republic in the world. Losing their fiscal autonomy to raise incomes for the wellbeing of the governed population, every state of the Indian Union is now in a distraught situation to handle this health crisis as their requests⁷ for the release of the funds from the centre are falling on deaf ears⁸. The helpless situation of the states in successfully securing funds which were mandated for them in the GST regime or disaster relief fund is clearly showing the feebleness of the Chief Minister posts, most of the powers of which were subdued by the Union government in a structural manner that culminated with the enforcement of the GST to this country. Once a powerful position as the head of the state government, the Chief Minister post is largely a decorative post now. Perhaps, the greatest irony is the fact that all the regional parties, which proclaim themselves as champion of states’ rights⁹, class struggles¹⁰, and all the chief ministers (irrespective of their boasted left/right/centre stands) in Indian Union were voluntarily surrendering their respective state’s sovereignty to the Union government, leaving behind the Tamil Nadu government and its chief Minister Jayalalitha¹¹ as the lone voice confronting the very idea of GST¹² to this country.

Why did all the states betray Tamil Nadu by failing to confront the idea of GST for this country? To understand their motive behind this “betrayal” through their acceptance of GST, which has proved to be a suicidal decision, the impact of GST on federalism has to be comprehended.

GST USURPED THE SOVEREIGNTY OF STATE GOVERNMENTS

Before GST, the states had the sovereign rights to levy indirect taxes which formed a major portion of the sources of income for the states. This autonomy helped the population of the respective states to influence the state governments to implement various schemes that were targeted specifically for the welfare of the ethnic nationals in their respective homelands which resulted in a significant improvement in the infrastructures of states with people who aspired development. The successful development of states such as Tamil Nadu and Kerala can be attributed to the efficient use of this fiscal autonomy. While these states were developing, many states in the north failed to use this autonomy to develop their population’s livelihood, thus resulting in a contrasting development scenario in north and southern regions of this country with the north being considerably stagnant in development since the independence from British. The rulers in Delhi were working ambitiously to usurp this autonomy of the states for more than two decades¹³ now. Ultimately the union government tacitly seized this indirect tax levying rights of the states with GST. This eventually quelled the abilities of the states to raise the required fiscal space in demanding times. Thus, they became the vassal states to union government.

GST has the following mechanism: The GST imposed on transactions carried out within a state had two parts- Centre GST (CGST) and State GST (SGST). The State GST subsumed all the taxes previously levied by states such as VAT, entertainment taxes, etc., and the Centre GST accounted for the service tax and the cesses (The cess is an exclusive sum which is not mandated to be shared with the state governments) levied by union government. But the entire amount collected, both SGST and CGST, goes to the union government, leaving the states to source their income just from the taxes on alcohol and petroleum products. Any transactions happening across the states are levied Integrated GST (IGST) which again is routed to the union coffers.

GST COUNCIL DERIDES THE IDEA OF DEMOCRACY

GST council is the apex body for the GST which has the sole rights to initiate any changes with regards to the nature in which it is imposed across the country. It constitutes finance ministers from the states who act as its members with the union finance minister acting as its chairperson. The idea that, GST council having a sole authority to decide on the implementation of this tax regime without bringing it under the purview of neither the legislative assemblies of the state governments nor the parliament of the union of the union government, itself is a clear expression of the mockery of the democratic institutions of this country. It is pertinent to quote¹⁴ here the words of Tamil Nadu’s former chief minister Jayalalitha’s words about GST council:

“GST Council as a constitutional body impinges on the legislative sovereignty of both the Parliament and the State Legislatures and completely jeopardizes the autonomy of the States in fiscal matters. We strongly object to the provision for the GST Council”

The decisions regarding changes in GST are finalized through a voting mechanism in the council which gives a veto power to the union government, thereby enabling its intrusion into the decision-making authority of the state governments.

A DETRIMENT FOR THE MANUFACTURING STATES OF INDIAN ECONOMY

One of the notorious aspects of GST is that it is levied at the destination point of a product rather than the manufacturing point. This is highly detrimental for the states whose economies are based on manufacturing sectors, by scrapping all their benefits of the decades long economic proliferations in a single night. It is a major reason for the states like Kerala and West Bengal, which lacks infrastructures for large scale production of Goods and services, to support GST for they expected to gain at the expense of the manufacturing states like Tamil Nadu. Reprehensibly, the GST council has bestowed equal voting rights to both consumer and manufacturer states alike. This allows the manufacturing states, which are fewer in number, to be not able to compensate for their economic losses as the consumer states which are larger in number can have more influence in shaping the decisions.

SCRAPPING GST REGIME IS THE ONLY OPTION FOR ANY ECONOMIC GROWTH

As it is an intricate problem with a potential to make the lives of a billion people miserable, the GST regime should be scrapped with the resumption of the autonomous functioning of the nation states in fiscal matters. But with a Union government having a complete majority and an opposition which is also determined to seize¹⁵ the sovereignty of state governments, even after being ousted from power for a decade, the people of this country are in serious trouble. Keeping aside the idea of one nation one governance, the citizens of this country should recognize the reality of the socio-economic landscape of this subcontinent which has almost one sixth of the global population distributed across different stages of development, with few southern states on par with Scandinavian countries and many northern states on the levels sub Saharan countries, and contemplate about a governance with a federal form which does not rob the developed states to initiate the development of the undeveloped states that chose not to develop on their own.

REFERENCES:

1. https://www.bloomberg.com/news/articles/2020-03-23/imf-sees-recession-at-least-as-bad-as-global-financial-crisis

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