Fiscal federalism

This paper examines the examines the fiscal impact of Goods and Services Tax (GST) in Gujarat which is a strong base of manufacturing activities. The paper covers the time period from 2008–09 to 2024–25 and uses an Interrupted Time Series model with Newey-West HAC standard errors. The paper finds evidence of persistent but moderate fiscal deceleration post-GST. During the study period, revenue growth decelerated by 4.0 percentage points annually and expenditure by 3.2 points. Chow test confirms structural breaks for both revenue and expenditure. Though the revenue CAGR had declined from 13.94% preGST to 9.29% post-GST, SGST achieved remarkable 18.05% CAGR compared to pre-GST Sales Tax at 13.51%. A decline in fiscal Autonomy Index was also registered during the study period from 66.1% to 60.3%, which can be attributed to increased transfer dependence from the centre. Developmental expenditure share had remained stable, while the interest burden declined from 17.9% to 15.5%. Revenue buoyancy improved from 1.01 to 1.22, the highest among major states. Findings reveal a manufacturing state paradox: destination-based GST created initial revenue losses requiring large compensation, yet improved buoyancy. It suggests long-term SGST potential exceeds pre-GST Sales Tax/ VAT performance.