Ideas of India Rathin Roy on How India Slices the Fiscal Pie
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Jul 31, 2025 Rathin Roy, a Distinguished Fellow at the Kautilya School of Public Policy, dives into India's complex fiscal landscape. He discusses the intricacies of fiscal federalism, showcasing how resource allocation affects rich and poor states differently. The conversation highlights challenges surrounding the Goods and Services Tax and critiques current fiscal policies for their regressive impacts. Roy emphasizes the need for transformative approaches to public finance, focusing on equity and inclusive growth to address systemic disparities.
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India's Unique Fiscal Union Structure
- India is a union, not a federation, where the central government can create or alter states at will.
- Tax revenue is mainly collected by the Union and then distributed to states by the Finance Commission based on formulas.
Uneven Growth and State Strategies
- Post-1990 growth concentrated in services led to uneven geographic prosperity in India.
- States like Tamil Nadu invest in private infrastructure to attract companies since they can't extract much tax from services.
GST's Promise and Pitfalls
- GST was intended as a low, unified tax to replace cascading taxes and improve efficiency.
- However, complex rate structures and frequent rate changes have made GST regressive and inefficient.