The Goods and Services Tax (GST) structure has “fundamental flaws” and now is the time to reform it, Tamil Nadu Finance Minister P T R Palanivel Thiaga Rajan said. In an interview with DH’s ETB Sivapriyan, the former top banker spoke on the state’s fiscal health, the need for doing away with the ‘One State, One Vote’ formula in the GST council, why the DMK government attaches prime importance to the HR & CE department, and spiritual leader Jaggi Vasudev. Edited excerpts:
While in opposition the DMK had accused the then AIADMK government of gross financial mismanagement. It has been over a month since you took over as Finance Minister and what is your take on the state’s fiscal health?
The biggest problem was the lack of revenue with Tamil Nadu losing about 3.5-4 per cent of its GSDP in revenue. They should have focused their attention on bringing that back up because much of it happened between 2014 to 2021. Things were not bad as long as (J) Jayalalithaa was in complete control of governance but once she began losing control after her conviction in 2014, the problem started, and it got much worse after her passing. An effectively revenue neutral or revenue surplus state from 2004 to 2014 suddenly started having record revenue deficits each year and consequently exploding debt. We are planning to release a White Paper on the state’s finances in a month which will explain what went wrong.
After taking over the department, I realised that much of the financial mismanagement was the result of sleepwalking, not because they consciously took bad decisions. As things began to slide, nobody bothered to check what was happening and nobody even cared to correct the mistakes. I feel it is a bigger problem of negligence which brings us to the question of why? It was because of lack of priority, lack of competence, or willful actions like corruption. It is hard for me to explain 100 per cent of the negligence retrospectively. This will become clearer when we publish the white paper.
The state’s debt stands at Rs 4.85 lakh crore, but the new DMK government has promised a lot of welfare measures and has already begun implementing some of them. Where will you get the money from?
The debt on the books as of March 31, 2021, is stated at Rs 4.85 lakh crore but it is only a Revised Estimate, and not the Final Account. There is a whole lot of hidden debt that will come out in the white paper. After we came, we have not been profligate, but rather spending on welfare measures that are very specific to the pandemic. My job now is to fix revenue and leakages in tax collection.
Our incremental spending so far would not have crossed Rs 20,000 crore, which is largely due to the one-time Covid-19 relief of Rs 4,000 to over 2 crore families and the costs incurred on augmenting medical infrastructure. If we were to run the finances and the balance sheet properly, I do not think we are going to face long-term negative consequences due to this Rs 20,000 crores of spending during the greatest pandemic of a century. This amounts to about 1% of the GSDP of TN which is conservatively around Rs 20 lakh crore. Many countries have spent more than 10 per cent of their GDP to overcome the effects of the pandemic.
Do you expect to sell assets to generate revenue, as many other states are planning, and the Union Government has been doing for many years?
I will not rule out asset sales, but that will of course happen as directed by Chief Minister M K Stalin. The great luxury of Tamil Nadu is that we have a lot of easily liquidatable, market-valued, non-core assets. But every state government is sitting on all kinds of value in terms of prime land that should be much better utilised not just to get funds for the people’s government, but also because of its multiplier effect on the economy. The reason we are reluctant to sell assets now is that we do not want to put the proceeds into a system that is broken. We must fix the system first, and then we will worry about what is the right ratio of debt, interest and so on, and how do we get from here to there.
What will be the next focus of the DMK government once the Covid-19 pandemic is brought under control?
The government has given a lot of promises and one must remember they are not done in a day. There were two sets of promises that our leader made to the people. One is the 10-year long-term vision for the state which I feel is doable, and the second is the short-term commitments in the manifesto. When you make a manifesto for an election, it is for the term of the government that the election decides, and everything is not fulfilled in just 24 hours and the remaining period goes off without doing anything. We are going to be driven towards delivering everything we have said in a realistic time frame within this term.
Ever since the DMK government assumed office on May 7, there has been a renewed interest in Federalism. The government has brought in a change in the nomenclature – from Madhiya Arasu to Ondriya Arasu. Why is it that the DMK continues to harp on federalism?
This terminology is an over-hyped subject. The licenses issued by the state of Gujarat read Union of India, and the court cases have the Union of India as the counterparty. The GST council meeting lists the chairperson as Union Finance Minister. I do not understand why we need to have this discussion. But as far as federalism goes, it is not a recent or temporary principle for us. It is the lifeblood of the Dravidian movement because the natural extension to self-respect is self-reliance and self-determination.
In Tamil, we call it suya nirnayam which means I must have a say in deciding my outcome and that is the basis for local self-governance. Our stand has always been that we should devolve powers down to the village panchayat. Federalism is in our blood. And one should realise that we are in politics only to put into action the principles that we take pride in.
When we talk about the devolution of powers to the panchayat level, what is the DMK’s stand on conducting local body elections in the state. Except for the village level, elections have not been held for the past five years. Is the DMK committed to conducting the elections?
We are very clear that these elections should be conducted as early as possible. We cannot have one stance when we are in opposition and another when we come to power. We want to run these elections as early as possible, and one should understand we went to the court only to ensure that the redistricting of wards and reservation to women and SC/ST happens fairly and equitably.
The AIADMK government did not hold the elections because they wanted all the powers to be concentrated in the hands of the then Municipal Administration minister (S P Velumani). We are committed to holding the elections as soon as we fix the problems of faulty redistricting of wards by the previous AIADMK government. We cannot hold the elections without rectifying the fault as it would imply our previous stance was wrong – which it is not.
In your speech at the GST Council Meeting, you harped on to federalism emphasising that India is a Union of States. Don’t you think such speeches put the DMK in a confrontation mode with the Union Government currently run by BJP?
One should see the speech in context. Since this was the first time that the DMK was in government after GST was introduced in 2017, we wanted to make our stand clear in the maiden speech. I did not say I was there to espouse federalism and I did not say that I was there to lecture on state’s rights. I merely asked everyone to re-evaluate the gains and losses since the inception of the GST journey, relative to expectations. I pointed out that gains were not realised, and losses were many more than expected, so now is the time to fix fundamental problems in the structure. I asked if not now, then when? I still feel the likelihood for a change or restructuring is much higher now than in a non-crisis time.
If I was so confrontational, why did the Union Finance Minister circulate my remarks to all States and add them into the minutes of the meeting as I requested? I did not go there intending to give a lecture on Federalism. I just did my job as a good citizen and a conscientious member of the GST council. Many other State’s Ministers called or write and congratulated me. I have no regrets.
DMK has been advocating reforms in the GST. What are the reforms that the party wants to be carried out?
We want profound reform as we feel the system has fundamental flaws. The way taxes are collected, and the way they are distributed are both problematic. We are not comfortable that the GST Council is simply informed after some bureaucrats set the rates. We ask how they were authorised to do so. If they (Union) delegate such powers to bureaucrats, they must come back to the Council of Elected Ministers for approval, at the very least. It is the Council that must approve the proposal.
We cannot just be informed of rates that un-elected individuals have determined. The fundamental question is, what is the role of unelected bureaucrats relative to elected representatives? The system has a basic weakness, and states have to play ball either explicitly or implicitly on many issues. We want early disbursement of GST dues from the Union Government and the compensation to be paid on time. As we speak, a lot of dues are pending.
You opposed the ‘One State, One Vote’ formula in the GST Council as “fundamentally flawed.” How do you want the voting value to be decided?
I think the logic is it should be based in proportionate to the GST generated or contributed by states. I think that is only fair. It is we who sacrificed our unilateral rights to do state-level taxation on sales when we joined the GST regime. The current ‘One State, One Vote’ system in the GST Council should go, and it should be replaced with proportional representation on the lines I stated. The current method perpetrates an injustice on states like Tamil Nadu, Karnataka, Maharashtra, and Gujarat in multiple ways.
A lot of attention is being given to the functioning of temples and their transparency under the new government. Is it the DMK’s way of blunting the criticism that the party is anti-Hindu?
The Hindu Religious and Charitable Endowments (HR & CE) is one of the most important departments to the Dravidian movement and it has always been so. It has nothing to do with random statements by rabble-rousers who do not understand a thing about the functioning of temples. This department has been of utmost importance from the days of the South Indian Liberation Federation (SILF) in the 1910s. These temples are important to us because they reflect our culture, our heritage, our race, and our very existence across history. Not just the Justice Party in which my great grand uncle M T Subramania Mudaliar and grandfather P T Rajan played an important role, but the DMK also has focused on preserving this heritage, which is at the very core of our identity.
DMK governments have allotted maximum funds to the HR & CE department, and it was our leader late Kalaignar (M Karunanidhi) who got the Tiruvarur chariot rolling after decades. The DMK’s efforts for temples are not just in 2021 but from our earliest Governments in the 1960s. It is part of our identity, so we pay this much attention to the temples and our leader has allotted the portfolio to an active minister (P K Sekarbabu) with historically unprecedented funds.
So, it is not because the DMK wants to prove a political point or respond to BJP’s criticism?
We have been doing it (protecting temples) well before the BJP existed. The first HRE Bill was brought in the 1920s during the Justice Party rule in the then Madras Presidency. Was there such a thing called the BJP in 1920? Then why did we do it? We did it because of our principles as I have clearly explained. We do not do it in “reaction” to others. How narcissistic is it to say that everything that happens is because of one person or one party?
You criticized the Free TN temples campaign and accused spiritual leader Jaggi Vasudev of violating rules on various counts. But a few days later you issued a statement saying you will not comment further on the issue. Do you regret criticising him?
I have not changed my views at all. He (Jaggi Vasudev) is a man who uses God and religion to make a living, to earn money. I still stay that way, and I am not taking my words back. There may be violations of 10 or more different departments and laws. Incidentally, Isha Foundation itself has accepted that it has violated the regulations when seeking regularisation of some structures. When they have accepted and it is documented by none other than the Comptroller and Auditor-General (CAG), what is there to debate or argue? My clarification was necessitated because a crescendo was building up that some immediate action was on the anvil.
I merely said it was not my role to prosecute because none of the violations relates to the departments I look after. But this issue highlights a bigger problem. Trusts with Income Tax exemption status are seen as special category entities, and states often neglect their regulatory role. It is not in the nation’s interest to have entities that are registered with the state government but implicitly or effectively regulated solely by the Income Tax Department of the Union.
It is not a sustainable long-term model. The previous Government passed into law a Trust Regulation Act (2020) as guided by both the High Court and Supreme Court. We opposed the framing of that Act as draconian and ill-designed, and after other interventions, the law was withdrawn. But on principle, I agree with both courts that states should have effective laws to regulate charitable trusts that do not come under HR & CE and the Wakf board. We need a law, and I will request the Chief Minister that we must enact a well-crafted law.