No federal flexibility given to states: Isaac

States aren’t being given federal flexibility and there are efforts to undermine the federal construction, former Kerala Finance Minister Thomas Isaac mentioned, including that federalism must be a subject of nationwide discourse.

“Every opportunity is made to undermine the federal system…it is a terrible situation,” Isaac mentioned throughout the fifth LC Jain Memorial Lecture on ‘The Challenges of Federalism: Negotiating Centre State Tensions’.

He mentioned the Centre’s fiscal deficit has fluctuated between 3.5 and 6 per cent since 2005-06.

“States are not supposed to borrow beyond 3 per cent of the GSDP. The government has never complied with it…from 2005-06, central government’s fiscal deficit has fluctuated from 3.5-6 per cent. This is the basic asymmetry. No rule or law, the Centre needs to comply but states are forced to,” he added.

Speaking in regards to the lack of federal flexibility for states underneath the Goods and Services Tax (GST) regime, Isaac mentioned levy of compensation cess may have continued for 2 extra years.

“It can have some federal flexibility…when the calamity of floods got here, Kerala requested and was permitted to have a 1 per cent cess on SGST (state GST). Nothing occurred to the structure of GST. See, you can provide federal flexibility by allowing states…(some states might) need extra colleges, they wish to break FRBM Act, those that don’t wish to do it, don’t do it however even that little bit of flexibility isn’t there.

“The compensation has stopped…it is a tax collected from sin goods like tobacco…you can continue for further two years…earlier there were negotiations, now that’s not (the case),” he mentioned.

Under GST, as per the Goods and Services Tax (Compensation to States) Act, 2017, the states have been assured compensation on the compounded fee of 14 per cent from the bottom yr 2015-16 for losses arising resulting from implementation of the taxation regime for 5 years since its rollout. The compensation regime resulted in June 2022.