Reconfiguring Fiscal Federalism in India After the Goods and Services Tax: Institutional Dynamics, Opportunities and Emerging Challenges

The introduction of the Goods and Services Tax (GST) in 2017 represents one of the most significant fiscal reforms in India’s post-independence economic history. By subsuming multiple indirect taxes into a unified tax structure, GST fundamentally altered the architecture of fiscal federalism and the nature of financial relations between the Union and the States. This study examines how GST has reshaped intergovernmental fiscal arrangements in India, focusing on institutional mechanisms, emerging opportunities, and the challenges that have surfaced in the post-GST period. The paper analyses the evolving role of the GST Council as a cooperative federal institution that facilitates negotiation, policy coordination, and collective decision-making between the Centre and the States. It also evaluates the implications of GST for state fiscal autonomy, revenue stability, and tax administration. While the reform has enhanced tax harmonization, expanded the formal tax base, and improved transparency through digital compliance systems, it has also raised concerns regarding states’ revenue dependence on the Union government and the declining scope for independent tax policy at the sub-national level. Using secondary data from official sources such as the Union Budget, Economic Survey, Finance Commission reports, and policy analyses, the study assesses the fiscal outcomes of GST implementation and its impact on cooperative federalism in India. The findings suggest that although GST has strengthened institutional collaboration and created a more integrated national market, persistent issues related to compensation mechanisms, revenue volatility, and fiscal autonomy continue to shape the debate on India’s federal financial framework. The study concludes that the long-term sustainability of fiscal federalism in India will depend on strengthening institutional trust, ensuring predictable revenue arrangements for states, and maintaining a balanced distribution of fiscal powers within the federal structure.