The GST Council will meet shortly, for the first time since October. It is India’s most important constitutionally mandated federal body to work out details of indirect tax and thereby influence fiscal policy.
There are two contexts to this meeting. In the near future, India’s economic recovery will depend on fiscal policy and therefore proposed changes in tax rates will matter. Taking a longer term view, India’s economic recovery will also be influenced by the political maturity with which the Council handles a structural constraint.
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The 15th Finance Commission observed that the Centre raises about 63% of the aggregate government resources but incurs only 37% of expenditure. Therefore, states do the heavy lifting from the fiscal standpoint. The patchwork of lockdowns will adversely impact GST collections and subsequent economic momentum. This can add to the friction between the Centre and states. If the Council can display the maturity to collectively take a long-term view of India’s situation, the bounce-back will be quicker.
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