How does the demand for compensation by opposition-ruled states reflect on the federal structure of India?

The demand for compensation by opposition-ruled states due to revenue loss from GST reforms highlights key issues within India's federal structure. The Indian Constitution establishes a quasi-federal system, where both the Centre and states have defined powers, but the Centre often holds greater financial authority. Financial disputes, like those arising from GST, test the balance of power and cooperative functioning between these two tiers.

• Fiscal Federalism: GST subsumed many state taxes, reducing states’ fiscal autonomy. The compensation demand reflects states’ dependence on the Centre for crucial revenue, challenging the principle of fiscal federalism.
• Centre-State Relations: When opposition-ruled states press for compensation, it exposes tensions in Centre-state relations. States may perceive the Centre as not honoring its commitments, leading to mistrust and political friction.
• Cooperative Federalism: GST was implemented through consensus in the GST Council, embodying cooperative federalism. Disputes over compensation threaten this spirit, as states may feel their voices are not being adequately considered.
• Political Dynamics: Opposition-ruled states may view the withholding of compensation as politically motivated, further straining the federal balance and raising concerns of partisan bias in fiscal matters.
• Legal and Constitutional Implications: The demand for compensation often leads to legal battles and references to constitutional provisions, such as Article 279A (GST Council) and Article 246A (power to make laws on GST), testing the robustness of federal mechanisms.
• Impact on Public Services: Revenue shortfalls can hamper states’ ability to fund welfare schemes and development projects, affecting governance and the federal promise of equitable development across regions.