Centre Proposes New Centre–State Fiscal Pact to Reform GST Revenue Sharing.

In a major national political development, the Union Government on Monday proposed a

new Centre–State Fiscal Cooperation Framework focused on reforming the Goods and Services Tax (GST) revenue-sharing system. The draft proposal was circulated to all states ahead of the next GST Council meeting and is being seen as a crucial step to address long-standing concerns over compensation delays, revenue volatility, and fiscal autonomy.The proposed framework comes at a time when several states have flagged mounting fiscal pressure due to rising welfare expenditure and uneven post-pandemic economic recovery. According to official sources, the new model seeks to move beyond temporary compensation mechanisms and create a predictable, rules-based revenue-sharing structure between the Centre and the states.

Under the proposal, states would be assured a minimum annual GST revenue growth rate through a stabilization fund jointly financed by the Centre and GST surplus collections during high-growth years. This fund would act as a buffer during economic slowdowns, reducing the need for repeated negotiations and ad-hoc borrowing arrangements. The government believes this approach will strengthen fiscal planning at the state level while maintaining overall macroeconomic stability.

Another key feature of the framework is enhanced transparency in GST data sharing. States will receive real-time access to transaction-level analytics, enabling them to better track revenue trends and detect tax leakages. The Centre has also proposed expanding the role of state tax officials in GST audits and compliance drives, a move aimed at reinforcing the spirit of cooperative federalism.

Political reactions to the proposal have been mixed but largely constructive. Several opposition-ruled states welcomed the intent, calling it a “positive departure” from past arrangements, while emphasizing the need for legally binding guarantees. “States need certainty, not assurances that change with circumstances,” said one state finance minister. Some states, however, expressed concern about their contribution to the stabilization fund and sought clarity on governance and decision-making powers The ruling party defended the proposal, stating that GST is a shared national project that requires shared responsibility. Senior government leaders argued that frequent Centre–State confrontations over GST compensation have hurt investor confidence and distracted from economic growth priorities. “This framework is about partnership, not control,” a senior official said.

Economic and policy experts have broadly welcomed the move, noting that a stable GST regime is essential for India’s long-term growth. Many analysts believe the proposed reforms could reduce political friction, improve tax compliance, and make the GST system more resilient to economic shocks.

As consultations begin, the fiscal pact is expected to dominate political discourse in the coming weeks. If consensus is achieved, the framework could mark a turning point in Centre–State relations and reshape India’s federal financial architecture for the next decade.