That South India leads the nation in development isn’t the uppity of the southern states, but one backed by numerous studies and surveys. Yet, till about the 1960s the South was comparatively less developed than the Northern regions. Successive governments across the southern states followed welfare policies, which led to the relative prosperity one witnesses today.
To follow welfare policies, which require a great deal of money, the states streamlined their fiscal policies to align with the people’s aspirations. Such fiscal freedom is possible only in federal countries, where the states are free to pursue policies they think are beneficial for the collective good.
With the advent of the GST, states in effect lose their fiscal freedom as they cannot levy, collect and allocate taxes like they could earlier. Thus, the development activities of the southern states will be at the mercy of the share they receive from the GST. Such a situation is an assault on the federal structure of our country. It now begs the question, what the role of the state legislatures will be in the future, as they will be virtually devoid of the freedom to undertake social expenditure at will. In addition to this, the pressure to adhere to the Fiscal Responsibility & Budget Management, (FRBM), guidelines, whereby the borrowing rights of the government are curtailed, in order to ensure fiscal discipline. With very little scope for fiscal manoeuvring, the state legislatures may be reduced to mere high school debating clubs.
Some would argue that three three types of GST, namely, CGST (the share of the central government), SGST (the share of the states) and IGST, (Integrated GST) are keeping in mind the federal structure of the country. However even this is discredited by the fact that the central government can veto any decisions taken by the GST council. Thus, the cooperative federal structure of India, which is best suited for the diversity of our culture, will lose out to a more centralized and unitary state. While the government is busy popularizing the slogan of ‘one nation, one tax’, it is implementing a total of 5 major slabs, namely 0 percent, 5 percent, 12 percent, 18 percent and 28 percent, which has created a great deal of confusion in the business and trading communities, especially the small and medium firms as there is no clarity on the government’s policies.
What will perhaps be the biggest bottleneck for the development of the southern states is that the GST is a consumer based tax. This means that the tax will be levied on the consumer, rather than on the producer. Much of the manufacturing happens in the Southern states while the bulk of the consumption is in the Northern region. Thus, when goods produced in the South are consumed in a state of the Northern region, the central government gets a part of the share via the CGST, and the State in which it is sold receives the SGST share. This leaves no revenue for the state that actually produced the product. One can imagine how much this will discourage production and thereby impact the employment being generated in the state.
The governments of the southern states as well as the centre aren’t explaining how they will make up for this gross injustice that the South will suffer. Having lost the fiscal freedom, in addition to discouraging production, which will impact the revenue collection in the South, the developmental and welfare policies of the states will be severely impacted. This is likely to translate into stunted growth of the states’ economies whereby the full potential is not realized.
The saner voices of reason that seek to ensure equitable justice and balanced regional development have been lost in the cacophony resulting from the banal arguments between the blind proponents and opponents of the GST. It’s high time the common citizens took part in meaningful discussions so that politicians, especially those whose wont is to divide and rule people based on various primordial identities don’t get away with demagoguery.

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