Centre has effectively turned states into municipalities: Tamil Nadu finance minister

May 13, 2022 11:29 PM IST

Over the last couple of weeks, there’s been a major row between the Centre and states over fuel price hikes, power shortage and inflation

Over the last couple of weeks, there’s been a major row between the Centre and states over fuel price hikes, power shortage and inflation. The Prime Minister asked states to cut VAT or value added taxes on fuel so that people can get some relief. But Tamil Nadu finance minister P Thiaga Rajan told HT’s Sunetra Choudhury and Roshan Kishore that this was an “illogical and unconstitutional idea’’. PTR, as he is known, also spoke about how the GST system is failing in what could be another fracture in Centre-state relations. Edited excerpts

Tamil Nadu finance minister P Thiaga Rajan spoke about how the GST system is failing in what could be another fracture in Centre-state relations.
Tamil Nadu finance minister P Thiaga Rajan spoke about how the GST system is failing in what could be another fracture in Centre-state relations.

On fuel price hike, the Centre says the states should reduce their VAT and you say that they should revert to the system before 2014. What’s the solution?

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The union government are masters at obfuscation and dissembling. It’s crazy logic. The union government raised taxes on petrol by three times and on diesel by ten times between 2013 and 2022. Did they call the states and consult? Did they ask for synchronisation? They think they are authorised to do what they are elected to do, they did that. My predecessor government, AIADMK (2014-2021) raised prices by 20-30%. So now all of a sudden for the union government to tell the states, `You cut the taxes’, is immoral, illogical and unconstitutional. I don’t understand where they got the right to dictate to others what they should do. They only got elected to run the federal union government, right? They didn’t get elected to run the TN government, right? Who are they to tell Tamil Nadu what to do? That’s the profound question I have.

What’s your take on the suggestion that fuel prices should be brought under GST?

Structurally, it’s very clear. If you remove all variables of taxation away from the states and put them under GST bucket, where are states to determine their revenue policy? You’ve effectively turned states into municipalities. Whatever I say today in defence of state’s rights, is going to be a softer position than the Honourable Prime Minister’s position when he was the Honourable Chief Minister of Gujarat. He may be the kind of person who changes his values because he changes his seat but we have a record of what he said then. If all direct taxation is with the union and only indirect taxation is with the states -- and now you’ve taken away the bulk of indirect taxation from the states, claiming homogenisation -- that means it is the only large country in the world where the states are almost bereft of any measures for revenue management. Why should the states not have the kind of independence which was envisioned in the constitution?

This union government is a pro-corporate, anti-poor government. Direct taxation revenues as a total of government revenues have fallen by 7-8%. This is a progressive tax and if you can raise the slab, you know who you’re taking it from. Indirect taxation is regressive, you don’t know who you’re taking it from, who’s buying how much petrol. So, they have clearly shown their philosophy of administration by increasing burden on the poor and the middle class and reducing it on the rich and the corporates. We don’t want to do that; we want to be a progressive government and we want to tax more those who can afford to pay but the tools are not in our hands. They’ll come up with obfuscation that GST is actually federal but how is GST Council’s structure set up? If all but 10 or 11 states agree, they still can’t get the council to vote that way because so far in the history of the GST council, the union government hasn’t allowed it to come to a vote. So effectively, it is a strong-arm tactic though they say consensus, consensus, consensus. The design is such that the union government can stop anything they want and they and 10 or 11 states can get anything passed. Who are these 10-11 states? They are the small Northeast states, 90% of whose budget comes from grants. Do you think they will go against the union government? So it wasn’t in the concept of democracy that was envisioned by our founding fathers, that this kind of deprivation of states’ rights should happen. If you take all the taxation power and all the decisions, and you do it in a regressive way, then why will we agree to that? We are perfectly happy to put petrol/ diesel into GST if all cesses are removed. They take 20 odd rupees a litre on cess and 1 rupee or less on excise. Then they say, `Let’s put it into GST’, they lose 1 rupee and we lose 100% of our taxation, how is it fair?

Has GST been a bad idea for fiscal federalism? Now that the GST compensation period is ending, would you as the finance minister of TN be pushing for an extension period?

GST is profoundly bad, not in concept. Where we have failed miserably is in the design of GST and in the implementation. When there is failure all around-- the government’s economic statistics for last eight years reek of failure in per capita income, job losses, gdp growth -- what’s the strategy? It’s the demagogic one of keeping everybody unsettled and throwing new things into the mix, so that they don’t talk about the numbers. Now, I’m saying there are huge problems in the execution and I’ve brought this up multiple times in the GST council. The GOM(group of ministers) on gaming was constituted last May with the original mandate of coming up with a report in six months. That GOM became defunct when the Gujarat minister that was there lost his role in the cabinet reshuffle and till December (six months later) no one bothered to reconstitute the it. In February, that was done and it met for the first time in April and now they want to rush a report in less than two weeks. So I’m saying, you did nothing, zero, nada. Same with the committee on rate rationalisation where only one meeting has happened ...and standing committee on reforms. So the system is doomed for failure if it goes on like this.

The Dravidian parties were the original believers in welfare politics. The BJP has now successfully started using welfare politics along with Hindutva to win recent elections

It’s hard for me to see how BJP governments keep getting reelected in the Hindi belt. Some part of me wonders if it is the lack of education, the lack of opportunity and the lack of hope. Is it that the difference is that in the southern states, we are still talking of the pie growing and people’s shares increasing whereas in the hinterland, it is taken for granted that the pie is not going to grow and there is fighting for who gets what, and therefore othering and rabble rousing and jingoism plays a big role?. The other theory is that the people of those states, somehow feel or are convinced that the opposition would be worse off so they choose the less bad of two bad choices. I can’t tell. If I go another way, the primary reason to do such schemes is not to win the next elections. It is in the course of being a compassionate and good government. You may call it freebie, I call equalising payments or social mobility. Values are the most important thing. Character is about what you do when no one’s watching, I say that it’s what you do, when there’s no election down the line.

Are you optimistic about the opposition coming together against BJP in 2024?

One week is a lifetime in politics. The narrative that the BJP would like to set is that an election that is two years away is already decided because of some state elections a few weeks ago. My friend Prashant Kishor was very trenchant when he said-- that election is about that election and not about any other election. Every election is from scratch. The next point I take from the markets which is that the longer they stay irrational, the harder they correct and the more the unpredictable and instantaneous the correction. So the notion that these elections that happened (earlier this year) were a forerunner for 2024, is just a fallacy.

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