Even if all the States combine together, they cannot have their way in the decision-making in the GST Council, unless the Union agrees to it. Analyze this in the perspective of federalism in India.

The GST Council and its Structure

The GST Council is a constitutional body comprising the Union Finance Minister, the Minister of State for Finance, and the Finance Ministers of all states and Union Territories with legislatures. Decisions are made through a consensus-based approach, but voting is provided for when consensus cannot be reached. Crucially, the Union government holds a weighted vote of 33.33%, while all states combined hold the remaining 66.67%. This necessitates a 75% majority to pass any decision, effectively giving the Union a veto.

The Union’s Veto Power: An Analysis

The requirement of a 75% majority means the Union government can block any proposal even if all states support it. This stems from the constitutional provision requiring the Union’s vote to be counted as one-third of the total votes cast. This structure, while intended to ensure national economic harmony, inherently favors the Centre. Several instances demonstrate this dynamic:

• Tax Rate Decisions: The Union has often steered tax rate decisions, sometimes against the preferences of certain states.
• Compensation Cess: Disputes over the release of GST compensation to states, particularly during the COVID-19 pandemic (2020-2022), highlighted the Union’s control over financial resources.
• Extension of GST Regime: Decisions regarding the extension of the GST regime beyond the initial five-year period were heavily influenced by the Union’s stance.

Implications for Federalism

This power imbalance has several implications for Indian federalism:

• Erosion of State Autonomy: States feel constrained in advocating for their specific economic needs and priorities.
• Cooperative Federalism in Name Only: The Council’s decision-making process often resembles a centralized model rather than a truly cooperative one.
• Distrust and Friction: The perceived dominance of the Union can breed distrust and friction between the Centre and states.
• Hindrance to Economic Diversification: States may be reluctant to pursue independent economic policies if they fear being overruled by the Union in the GST Council.

Arguments in Favor of the Current Structure

Despite the criticisms, the current structure also has its justifications. The Union government argues that its veto power is necessary to:

• Maintain National Economic Unity: Ensure a uniform GST rate across the country, preventing tax wars between states.
• Protect National Interests: Safeguard the overall economic stability and revenue collection of the nation.
• Ensure Compliance: Enforce compliance with GST regulations and prevent revenue leakage.

Potential Reforms

To strengthen cooperative federalism within the GST framework, several reforms could be considered:

• Revisiting the Voting Structure: Exploring a more equitable voting structure that reduces the Union’s veto power.
• Strengthening Dispute Resolution Mechanisms: Establishing a robust and independent dispute resolution mechanism to address disagreements between the Centre and states.
• Greater Transparency: Increasing transparency in the Council’s decision-making process.