A political scion with engineering and management degrees from top institutes at home and in the US, including an MBA in Finance from the Sloan School of Management at MIT, Thiaga Rajan was picked as Finance Minister in the MK Stalin-led DMK government in Tamil Nadu.
Thiaga Rajan calls the GST Council “poorly designed”, explains how lack of data hinders governance, touches upon his run-in with Jaggi Vasudev and lays out DMK’s federalism principle. The session was moderated by Executive Editor (National Affairs) P Vaidyanathan Iyer.
P VAIDYANATHAN IYER: In your speech at the GST Council in May, you described it as a rubber-stamp council. You also spoke about extreme concentration of powers with the Centre. Do you think a worsening of government finances due to the prolonged slowdown also led to a situation where states are feeling the brunt?
There are three-four different aspects. The first is the Union-state relationship, and like any relationship, it gets frayed over time, and the cracks are more prominent in times of stress. So, the combination of a deteriorating economy and the Covid crisis has made it inarguable that the relationship is not where it should be. And the irony of it is, I don’t have to go far for justification of my quotations — I just have to look at the reign of Narendra Modi as Chief Minister of Gujarat. You will find every action taken by the Union government in terms of fiscal relationship with states is directly in contradiction to the statements made (by him) when he was the CM.
The question of the GST Council is more nuanced. The construct is not well-thought-out, the rush to execute it for the sake of the usual showmanship and dramatic effect that we have now seen with the four-hour notice for the lockdown and the overnight demonetisation… There have been hundreds of changes since the introduction of the GST Bill, we are still playing catch-up. The fact that we are doing so four-and-a-half years later…
In my limited understanding of four months, I understand that the GST Council only has an advisory role. It may go ahead and decide a new rate, but for it to take effect, the state has to pass an ordinance or make changes in its own commercial tax rules.
In my opinion, there has been a deterioration in Centre-state relations. A lot of it is avoidable. The thing that really hurts the country is that concentration of power is happening in the hands of people who either don’t want to use it or don’t know how to use it. They take the power away from other people and then do a very, very poor job of using that power. The fact that the GST Council is so poorly designed adds to this.
P VAIDYANATHAN IYER: You have spoken of the breakdown of trust between the Centre and states. Is it only related to fiscal federalism or would you like to be more specific?
I will give you two very concrete examples. The first bad faith is the whole pretence of moving devolution to states from 32% to 42% (of divisible tax pool). If you look at any analysis by any independent body, the so-called devolution has not resulted in any real devolution. They have moved so much of the money into the indivisible cess bucket that we don’t get any of the money. The outcome of it is that the amount of money we get from the Union in grants and subsidies is higher than what we get as share of the taxes. If we get it as our share of the taxes, we get to legislate on how we want to spend it. That is clearly against any principle of federalism.
Then there is the absurd logic of why the Union government should not have the 14% minimum compensation scheme written into the law. It said we can’t pay 14% because there is not enough money, that the system is designed such that only the cess collected on GST is the basis of paying compensation. About the same time, the CAG report comes out saying that the first two years, you collected around Rs 40,000 crore more in cess than you had to pay to the states, and instead of letting it lie in the account, you took it back into the Union government’s tax pool without sharing it. So you used the cess logic to collect it, not share it, and you did not use it for the purpose for which it was to be used…
P VAIDYANATHAN IYER: The DMK was part of the NDA-I government. What has changed in the NDA, BJP or the DMK’s own philosophy that has pulled the two parties apart?
Right now, the gap between the DMK’s position and the Union government, rather than the BJP — I don’t think it is only the BJP we have an issue with… Let me say, the DMK’s position has remained unchanged. We have always been federalists, for devolution of powers not just from Union to states but also from states to lower rungs of power. But the BJP’s position has changed dramatically. The same PM and Home Minister when in Gujarat were the greatest federalists. Now, they have become the greatest centralists, at least since the days of Prime Minister Indira Gandhi. They want to control everything, from food policy to education to taxes to toilets. So, it’s more this government rather than the BJP at some level.
At another level, of course, the notion of secular, social justice parties is quite different from parties driven by Hindutva philosophy. But even there, that philosophy has not remained constant. Most people would feel that the administration of Vajpayee was different from the administration we see today.
LIZ MATHEW: In the recent Parliament session, the DMK was a silent partner to the Opposition protests. Do you think that like Mamata Banerjee, who has taken an initiative, the DMK could take the lead in bringing all parties together, at least on issues you have raised today?
I am very, very junior in the party and at some level, I am not in a position to comment on the DMK’s position at the national level. Still, I will say that the future of this country lies in regional parties and state governments. Anyone who has any understanding of the complexities, diversity of this country, notions such as ‘One Nation, One Taxation’… all these are not executable. And if they are not executable, they will fail, no matter what you do, no matter how many people you get into this cult-like belief.
We are seeing it fail every day. You can’t use the Swachh Bharat funds because you can’t go and build the toilets yourself. This notion of one national policy is inherently self-defeating. It is a question of how long and after how much pain.
Even the concept of national parties, to me, is contradictory. The BJP is pro-beef in the Northeast and Goa, but you can get killed in some BJP-ruled states on the suspicion of even carrying beef… The Congress is in opposition to some parties elsewhere, we are all in a coalition here. So the BJP may be strong in 10-12 states, in the rest, they either buy power, because they control the Union, or the people… I have told my party leader too that we can show what good governance looks like, what data-driven governance looks like, actions driven by your philosophy… With limited powers we can achieve great outcomes compared to those with unlimited power who are not able to achieve anything. Our honourable CM (M K Stalin) is very clear about his values…
AANCHAL MAGAZINE: You talked about GST compensation dues. For this year, the amount has been estimated based on projections of growth. Is this fair, given that dues of last year have also not been cleared? My second question is regarding your very public spat with the Finance Minister of Goa and other BJP-ruled states. Other finance ministers have also said their views are not heard at the GST Council.
The system is designed for idiosyncratic risk, that is to take care of it if a state faces a problem. But when you have systemic risk, when states and the Union go down, then the entire compensation mechanism is designed to fail. We are in this situation because the entire economy has failed… Like other aspects of the GST, this is not well thought out.
On the issue with the Goa FM, I had only one issue. At the GST Council meet, we spent an hour-and-a-half discussing what is for ratification, what is for approval, and what is for information. Ministers like Mr Badal (Manpreet Badal, Punjab Finance Minister) raised the point that if it is not to be approved by us, but just informed to us, does it have the weight of law? Because the rule is that we as elected representatives have to approve this… That is all he said, that change the wording of ‘for information’ to ‘for approval’, so that we can approve it and you have the luxury of a legal kind of support. But this (Goa) minister went off on a tirade, about ‘anti-national’, ‘this being a war-like situation’. It was nonsense, atrocious because he was casting aspersions on the integrity, competence, patriotism of people who were raising really valid questions. I got in and said it is atrocious that you have these council meetings where one minister, that too from a tiny state, gets to cast aspersions on the validity of other people who represent millions of people. At this point, Ms Nirmala Sitharaman castigated me, saying that in this Council, there are no small states or big states. Only, 15 minutes later, over ease of doing business, the BJP’s satellite states made the argument of being small states. I told Ms Sitharaman, ‘Ma’am you just reprimanded me saying there are no big states and small states’… The Goa minister came out and held a press conference and accused me of all kind of things.
News Source: The Indian Express