Three Pillars, One Budget: The Synergy Between Finance Commission, GST Council, and Finance Ministry

The GST Council, the Finance Commission, and the Ministry of Finance are the three pillars of fiscal governance of the Indian economy. The Union Cabinet formulates overarching policies, which are implemented by these three bodies within their respective domains. They follow the basic principle of allocating resources, taxation, and most importantly, policy execution targeted toward achieving sustainable economic growth of the nation.

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THE UNION BUDGET

The Union Budget, which has been reformed over the years to reflect India’s socio-economic objectives, is an annual economic statement that the Finance Minister has to present to the Parliament and is the gross output obtained after extensive collaborative work done by these entities over a long period of time.

The first introduction of the budget dates back to 1860 and has undergone significant transformation, for the better, post-independence.

Now it serves a greater purpose than just a simple accuracy of money spent against earned. It has proven to be an effective initiative for the country’s economic progress.

Taken together, these set out the interplay between the GST Council’s united orders of government’s highest source of revenue, the indirect taxation, the roles of the Finance Commission in equitable distribution of resources, and that of the Ministry of Finance in making and implementing the budget. This analysis tries to explain how these institutions synergistically cooperate to resolve fiscal challenges, encourage cooperative federalism, and ensure fiscal stability and growth in India.

GST COUNCIL AND UNION BUDGET: A SYNERGISTIC FRAMEWORK

The formation of the GST Council has been mandated, under Article 279A(1) of the Constitution, to take place within a period of 60 days from the commencement of the Constitution (One Hundred and First) Amendment Act, 2016, through an order that was supposed to be issued by the President. Article 279A(2) describes secure membership with the Council by the Union Finance Minister, the Union Minister of State for Revenue or Finance, and finance or taxation ministers nominated by the states.

This article further assigns the GST Council the power to recommend on other key aspects of GST, such as tax rates, exemptions, threshold limits, and special provisions for states, thereby nurturing a dynamic and cooperative tax ecosystem in India.

Through the GST regime, India changes its taxation landscape to a seamless national market that delivers results in driving growth. Such a broad perspective introduces not only the facilitations for trade but also strengthens the base of cooperative federalism in the country.

The Union Budget continues to provide necessary direction to the functioning of the GST Council in terms of the fiscal objectives of the central government. For example, in the Union Budget 2025-26, presented by the Union Finance Minister, Smt. Nirmala Sitharaman, several amendments have been suggested in the budget intended to improve trade facilitation and compliance pertaining to GST.

Major recommendations of the budget proposed include distribution of input tax credit for inter-state supplies, implementation of a track-and-trace mechanism, reversal of input tax credits linked to credit notes, and an optional 20% mandatory requirement as stated under Section 252 of the GST Act for appeals against penalties imposed in the form of deposits.

The ultimate goal of the Union Budget is to clear the decks for ease of doing business. Once aligned with states as per the recommendations of the GST Council, these changes may improve the GST system by introducing more procedures ensuring compliance and transparency and seeking to end operational glitches.

Such collaborative actions between the GST Council and the Union Budget indicate India's commitment toward a robust, dynamic, and inclusive fiscal ecosystem.  

THE FINANCE COMMISSION: A PILLAR OF FISCAL POLICY AND ITS IMPACT ON THE UNION BUDGET

The Finance Commission, established under Article 280 of the Constitution of India in 1951, plays an important role in fostering India's fiscal landscape. Specifically, it describes the framework for financial relations between the Union and the State Governments. It recommends the distribution of net tax revenues between the centre and the states, principles for allocation of grants-in-aid, and methods for resource mobilisation for state panchayats and municipalities.

Though its recommendations are advisory in spirit, they hold immense value in the formulation of the Union Budget, directing fiscal allocations and priorities.

The Union Budget, which is the annual financial statement of expected revenue and expenses of the country, relies heavily upon the recommendations and inputs of the Finance Commission. The Commission studies other information about economic conditions governing prudent fiscal management, directly influencing the structure of the budget.

For example, the 15th Finance Commission recommended that the Centre should curtail the fiscal deficit to 4% of GDP by 2025-26 and also fix fiscal deficit targets for the states. These recommendations have proven crucial in determining the borrowing limits, expenditure targets, and goals for achieving fiscal responsibility stipulated in the budget.

The Finance Commission’s recommendations also set the agenda for reforms addressed in budget provisions. Lately, it stressed the need to streamline the GST rate structure, sort out the inverted duty issue, and broaden the tax base—all reflected in the ongoing GST reforms, as proposed in the Union Budget.

Its suggestions relating to health expenditure, including increasing state allocations to more than 8% of their budgets and a focus on primary healthcare, have had an impact on the budgetary allocations for public health and infrastructure development. 

The Commission recommended the establishment of a non-lapsable Modernisation Fund for Defence and Internal Security with Rs 1.5 lakh crore from the Consolidated Fund of India to bridge the capital outlay gap.

The announcements made by the Commission related to dedicated funds and recommendations concerning centrally sponsored schemes deep down echo in the budget announcements, which focus on efficient resource utilisation.

This functional role of the Finance Commission extends beyond just making recommendations; it spells out some sort of a conceptual class operation for the Ministry of Finance and the Union Cabinet to thoughtfully deliberate upon different fiscal challenges while promoting cooperative federalism.

This puts foresight on fiscal discipline through maintaining the right vision of the budget linked to the Commission's fiscal roadmap, balancing out development with financial discipline, and resource efficiency being the hallmark of a proper and inclusive Union Budget. 

CONCLUSION

In summation, the mechanism of fiscal regime thus stands on the tripod of the Finance Commission, the Union Budget, and the GST Council, deftly interconnected to steer the country along the path of sustainable economic growth. 

To strengthen such a framework, India needs to work toward strengthening fiscal federalism for better allocation of resources, enhancing GST reforms to develop compliance and revenue generation, and converging budgetary policies with economic growth and sustainability.

It is in the deliberative spirit of the Finance Commission that India embodies cooperative federalism, responsible resource allocation, and high-spirited policy-making through the fiscal setup process, the executive enactment of the Union Budget, and finally the GST Council.  

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BY APURVA BHATTACHARYA

TEAM GEOSTRATA

info@thegeostrata.com