GST, Sectoral Transformation, and Fiscal Federalism in India

Abstract

 The introduction of the Goods and Services Tax (GST) has transformed the Indian indirect taxation and had major consequences on the performance of the sectors and federalism in fiscal policies. This paper discusses how GST influences the sectors in India and compares the Centre and State revenue allocation to evaluate its contribution to enhancing efficiency in the economy and collaborative fiscal management. The research utilises the secondary data that covers the period between 2017 and 2022 to assess the growth of post-GST in key sectors and how GST revenue is distributed between the Centre and the States. The findings indicate that logistics experienced a highest growth of 12.1 per cent, pharmaceuticals 10.4 per cent and FMCG 9.6 per cent after GST, with gains in its supply chain integration and lower tax cascading. Comparatively moderate growth of services at 7.8 per cent was observed, which is a rate complexity and compliance issues. The fiscal analysis indicates that the revenue sharing mechanism under GST is relatively balanced with the Centre contributing 52 per cent and the States contributing 48 per cent of the total GST revenue. Evidence at the state level indicates that there is a concentration of GST collections to a few economically developed States with Maharashtra leading with a share of 16.8 per cent. Its results imply an increase in sectoral restructuring and reinforcement of cooperative federalism, and point to the continuing regional and sectoral inequalities in the post GST Indian economic environment.