The introduction of the GST has significantly eroded the financial freedoms of Indian States, according to K.N. Harilal, Chairman of the 7th State Finance Commission.
Speaking at a seminar on Centre and State Budgets organised by the Public Policy Research Institute (PPRI), the Institute of Parliamentary Affairs and the Economics Department of the University College, Prof. Harilal expressed concern over the growing fiscal imbalance between the Union and the States.
Indirect Tax Control Concentrated with the Centre
Prof. Harilal noted that the unilateral determination of indirect taxes by the Union government under the GST framework has reduced the financial manoeuvrability of States. He argued that the centralisation of tax powers has restricted States’ ability to independently respond to regional economic needs.
He further pointed out that legislations such as the Fiscal Responsibility and Budget Management Act (FRBM Act) have also limited States' spending capacity by imposing fiscal deficit constraints.
Rising Dependence on Cesses
Another major concern raised was the Centre's increasing reliance on cesses and surcharges, which are not required to be shared with States under the divisible pool mechanism. According to Prof. Harilal, this practice has further weakened States' fiscal space.
Despite the structural changes brought by GST, he observed that the Centre's revenue from GST has not seen a substantial increase, indicating deeper structural issues within the tax system. "All these developments point towards a fiscal crisis taking shape in the country," he cautioned.
Concerns Over Social Security Pensions
PPRI Director Mohanakumar S. highlighted stagnation in social security pensions at the Central level. He noted that the old age pension was last revised in 2006, from Rs 75 to Rs 200 and has not been increased since.
The Rs 500 monthly pension provided to beneficiaries above 80 years from Below Poverty Line (BPL) families has remained unchanged since 2011. He added that although nearly 16% of Kerala's population is above 60 years of age, only about 1.3% receive the Centre's pension benefits.
Experts Call for Fiscal Reassessment
The seminar also featured addresses by Biveesh U.C., Director General of the Institute of Parliamentary Affairs; Veena Ranjini, Head of the Economics Department at University College; and C. Veeramani, Director of the Centre for Development Studies.
The discussions underscored growing concerns over fiscal federalism, revenue-sharing mechanisms and the need to reassess Centre-State financial relations in the evolving GST era.
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