States’ fight for financial autonomy
In a sign of growing rancour between New Delhi and the states—particularly those under non-BJP governments—over collecting, apportioning and utilising tax resources, Chief Minister M K Stalin on Tuesday launched a broadside against the Centre, accusing it of imposing an economic crisis on state governments by taking away their rights. The trenchant criticism comes just days after the Supreme Court held that the GST Council’s recommendations are not binding and both the Union and state governments have simultaneous powers to legislate on the Goods and Services Tax (GST).
Incidentally, Tamil Nadu and a few other states have already rejected the Union finance minister’s exhortation to reduce VAT on fuel after the Centre’s excise duty cut of Rs 8 per litre on petrol and Rs 6 per litre on diesel. The TN finance minister said that value-added taxes are calculated on ad valorem basis and any cut in fuel price by the Centre will automatically reduce the revenue generated by states under VAT. State governments, though endowed with a greater responsibility compared to the Centre to answer people’s yearning for welfare, have only a few avenues left to generate resources.
Indirect taxes, the states’ traditional and autonomous revenue source, have also been lost to a single, nationwide GST. Against this backdrop, states, particularly those ruled by non-BJP parties, face huge political compulsion to assert their rights to generate and utilise more revenue for schemes they deem fit. Political rhetoric such as ‘double-engine growth’ made by the PM, implying that the BJP-led Centre will be more than willing to share its largesse with states ruled by the party, has widened the chasm between the Centre and states.
The new SC order may have given the states the legal ammunition to ratchet up their fight for financial autonomy. The once-in-five-year Finance Commission envisaged under the Constitution may not be good enough to address the dynamic financial needs of the states or address their grievances expeditiously. The need for a formal National Development Council-like politico-administrative authority where CMs and the PM can meet and iron out wrinkles from time to time has never been stronger than it is right now.