The Goods and Services Tax (GST) revamp marked a significant milestone in Indias fiscal landscape, notably because opposition-ruled states, which had earlier voiced concerns, finally aligned with the reform agenda. This unity was critical for the smooth implementation of GST 2.0, reflecting a rare instance of cooperative federalism in a deeply diverse political setup.

Opposition-ruled states expressed early apprehensions primarily centered on potential revenue losses due to the proposed rationalization of GST slabs—from four rates to just two (5% and 18%)—and the associated removal of certain tax brackets. States like Kerala, Telangana, Tamil Nadu, Karnataka, and Jharkhand feared that this simplification could translate into tens of thousands of crores in annual revenue shortfalls, which would impact their welfare budgets, salaries, and development plans. Jharkhand, for example, highlighted an anticipated revenue loss of around Rs 2,000 crore annually. Other southern states, including Kerala and Telangana, projected even larger deficits and demanded compensation assurances from the central government to offset these losses.

The turning point in the consensus-building was the insistence by opposition states on a well-defined compensation mechanism. They collectively agreed to support the GST revamp only under the condition that the Centre would provide financial safeguards against revenue dips. This dialogue culminated in an understanding that protecting state revenue interests and ensuring fiscal stability in the federal framework were paramount. The compensation commitment, combined with the Centres assurance on compliance simplification and potential consumption growth benefits from lower tax rates, helped assuage the states concerns.

A key factor enabling this consensus was the structure of the GST Council itself—a consultative federal body where both the Union and states’ finance ministers deliberate and decide by consensus rather than majority rule. This institutional design encouraged dialogue rather than confrontation, ensuring opposition states had a voice and stake in shaping policy. The Modi government’s outreach to senior opposition leaders and responsiveness to state-level financial apprehensions further built the trust required to move forward.

Moreover, support from the National Democratic Alliance ally Andhra Pradesh and recognition from senior opposition leaders that GST rationalization benefits the broader economy contributed to bridging political divides. The promise of cheaper goods for consumers, a boost in economic activity, and a more straightforward tax structure also underscored the reforms positive outlook for people and businesses alike.

In summary, opposition-ruled states came on board the GST revamp through a mix of strategic negotiation, assurances on compensation for revenue losses, and the shared understanding of GST as a national reform that transcended political rivalry. The experience highlights the strength of cooperative federalism where even politically divergent entities find common ground for the countrys economic welfare. This consensus not only enabled the GST overhauls successful passage but also set a precedent for collaborative policymaking in Indias complex federal democracy.

Disclaimer: This image is taken from NDTV.