Create a custom practice set
Pick category, difficulty, number of questions, and time limit. Start instantly with your own quiz.
Generate QuizGK Question
When GST compensation to States fell short due to economic slowdown (2019-20), the Centre borrowed on behalf of States to meet compensation commitments. This reflects which federal principle?
- Violation of federal principles as Centre cannot borrow for States
- Cooperative federalism with flexible mechanisms to address unforeseen challenges while honoring commitments
- Permanent transfer of State taxing powers to Centre
- Elimination of State fiscal autonomy
Answer: Cooperative federalism with flexible mechanisms to address unforeseen challenges while honoring commitments
GST compensation case study (2019-2022): (a) Legal framework: GST (Compensation to States) Act, 2017 guaranteed States 14% annual revenue growth compensation for 5 years (2017-22), funded by GST compensation cess, (b) Challenge: Economic slowdown reduced cess collections; compensation shortfall threatened State finances, (c) Solution: Centre borrowed ₹1.1 lakh crore on behalf of States (back-to-back loans) to meet compensation; States repaid from future cess collections, (d) Federal principles demonstrated: (i) Honored commitment despite fiscal stress: Centre prioritized State revenues, (ii) Flexible mechanism: Borrowing arrangement preserved State fiscal autonomy without amending Constitution, (iii) Dialogue through GST Council: Consensus-building resolved crisis without litigation, (e) Broader implications: (i) Trust in cooperative federalism: States confident Centre will honor commitments, (ii) Institutional resilience: GST Council mechanism adapted to unforeseen challenges, (iii) Fiscal responsibility: Balance between State revenue protection and Centre's fiscal constraints, (f) Illustrates cooperative federalism in practice: Institutional mechanisms enabling adaptive problem-solving while respecting fiscal autonomy; flexibility within constitutional framework.