FROM FISCAL FEDERALISM TO FISCAL SUBORDINATION: A CRITICAL ASSESSMENT OF GST’S IMPACT ON THE REVENUE AUTONOMY OF INDIAN STATES

AUTHOR – HRADYESH CHATURVEDI* & DR. SANJAY KULSHRESTHA**

* RESEARCH SCHOLAR AT JIWAJI UNIVERSITY GWALIOR

** PROFESSOR AT JIWAJI UNIVERSITY GWALIOR

BEST CITATION – HRADYESH CHATURVEDI & DR. SANJAY KULSHRESTHA, FROM FISCAL FEDERALISM TO FISCAL SUBORDINATION: A CRITICAL ASSESSMENT OF GST’S IMPACT ON THE REVENUE AUTONOMY OF INDIAN STATES, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (9) OF 2026, PG. 81-87, APIS – 3920 – 0001 & ISSN – 2583-2344.

ABSTRACT

This paper critically examines the framework of fiscal federalism and its shift forward, following the introduction of the Goods and Services Tax in India in 2017. The implementation of GST in India has not strengthened cooperative federalism,  it has systematically diluted the revenue autonomy and freedom of Indian states, thereby, reducing them from the constitutionally empowered fiscal partners to financially dependent units of the central. It has furthermore deepened the fiscal subordination of the states by the way of dismantling their financial and independent tax base. It further created structural revenue dependency of the state in the centre. And rendering the compensation mechanisms with an efficient, adequate and time-bound substitute for genuine fiscal sovereignty.

The Indian constitution envisages a federal polity where the states retained meaningful control over their fiscal affairs. However, the GST regime, through the abolition of state-level  taxes such as the VAT, entry tax and Octroi, fundamentally reframed the balance. This paper critically analyses the Pre and Post GST revenue patterns of Indian states which exposes the structural failings of the GST compensation mechanisms followed by its abrupt cessation in 2022. It further interrogates the functioning of the GST council envisaged as the institution that concentrated on fiscal-decision making powers with the union government. Through an empirical analysis and constitutional scrutiny, this paper further argues that GST has not been just a reformed taxation system, rather a reconfiguration of the federal bargain itself, as a severe cost to the state autonomy.

This paper practically focusses on the variant questions as in 1. Has the implementation of GST structurally dismantled the independent taxation system of the Indian states and to what extent has it replaced the constitutionally guaranteed fiscal autonomy with the dependency on the centralised system? 2. Do Pre-GST and Post-GST patterns of the Indian states empirically establish the promised revenue neutrality of GST or was it a fiscal illusion or just the shift of the class of the biases? 3. Was the GST compensation mechanism a true instrument of fiscal federalism or merely a transitional political concession? 4. Does the structural composition and the decision-making architecture of the GST council reflect cooperative federalism or does it institutionalize the centre dominance with the aim to reduce the states to the role of passive-participation in the fiscal decision-making?