As the freebie debate rages on after Prime Minister Narendra Modi's “revdi culture” remark, the Tamil Nadu government has sought to differentiate freebies from welfare schemes. The state's finance minister, Palanivel Thiaga Rajan, explained to THE WEEK how the Union government's failed policies were affecting the economy and the federal structure. Excerpts from an interview:
Q/ How do you assess the impact of the Modi government's economic policies?
A/ I would say that overall the economy has been mismanaged pretty badly, almost from day one. The Gujarat model had deep flaws. It was not acceptable growth, it was not inclusive. It was lopsided. That kind of insider-dealing, crony-capitalist model just cannot be executed at the national level.
Now, we find ourselves stuck in a model that is not realistic. We find ourselves skewed away from the many towards the few. Total taxation and direct taxes from the corporates have dropped drastically, and the burden on the common man has gone up. Similarly, cooperation with states, allowing them to do what they do best, has been decimated. This idea that Delhi knows best, and one nation one X and one nation one Y, is structurally flawed. This is doomed to fail. The question is how long it takes and how much damage it does.
If you look at per capita income growth or GDP, exports, capital investment, capital formation—any of these numbers—and compare the last six or seven years with the 10 years before that, it is worse. I am not saying the previous 10 years were perfect, but the last eight years have been worse. The more you try to centralise and go ahead with narratives like GST at midnight and overnight demonetisation, the less likely a good outcome becomes. It is like the laws of motion in physics.
Q/ How has it impacted the Tamil Nadu economy in particular?
A/ We are part of the Indian Union. So, if the country is affected badly, we also get badly affected. If you look at specifics, the allocation to Tamil Nadu has been decreasing steadily. We cannot benefit from many of the schemes that they have launched at the national level because we are far ahead of the national average [in those areas]. In the past, a portion of our tax money was given to us as grants and schemes, and there was devolution. But, now, partly because of the huge reliance on cess and surcharge, Tamil Nadu's ability to manage its own finances is being curtailed. They are trying to tie our hands and make us incapable of self-determination. They want to make all the decisions from Delhi. Almost like a colonial mindset to take away the people's rights.
Q/ If finances are badly affected, does it not make sense to reduce subsidies and the money spent on freebies?
A/ My question is, how can you say which is a freebie and subsidy, and which is an investment. If I give free schooling, is that an investment or a subsidy? This whole debate is a waste of time. There are already laws and controls, like the FRBM Act (Fiscal Responsibility and Budget Management Act, 2003) and its equivalent in the state. That means you have to spend within your earnings. The primary requirement in FRBM is zero revenue deficit and 3 per cent fiscal deficit.
So if the law is followed, it is automatically self-balancing; you cannot do too much of this and too little of that. If it is violated, then there is a threat, but not at the states, at the Centre. Because the Union government can amend the FRBM Act and nobody second-guesses them. Whereas in the states, if you amend our equivalent acts, we have to get the governor and president to sign on the bills, which they are already not doing—they are being extra constitutional and making their own decisions which they are not supposed to do. Unelected people saying which law of the legislature should be accepted or not is completely authoritarian, anti-constitutional, dictatorial and despicable.
On top of that they basically use Article 293 (3) of the Constitution (consent of the Union government for a state to raise loans) to insert themselves into our borrowing practices. So even if the state legislature passes an amendment to the relevant act, giving me the chance to borrow up to 5 per cent, I still have to take the Centre’s approval.
Q/ But, do you mean to say that welfarism comes at the expense of tax prudence and fiscal discipline?
A/ I did not say that. What did I say? Let me rephrase. Whatever is allowed as fiscal deficit is already controlled by the FRBM Act and the equivalent act in the state, and the Union government has a second tool—Article 293(3) of the Constitution—to stop states from doing what the Union government does not want the states to do. Why do I need to debate this more?
Q/ How is the DMK government handling welfarism?
A/ No, there is no welfarism. People elect us to do a job. We find ways to spend public money in the best way, because that is what the Constitution says legislatures are supposed to do. So, we present a budget to the legislature and we get approval. How much of that you choose to call welfarism or freebies or whatever is up to your interpretation. We do not particularly care what you think. We do it for the people. I do not need to explain any philosophy to anybody. I act. I do. That is why I am in government. The people will decide whether our actions are appropriate or not.
Q/ If so, why does the prime minister call it revdi culture?
A/ I cannot answer this. Is there any clause in the Constitution that [what] an MP elected in Varanasi [says] supersedes what the MLAs elected in Tamil Nadu pass in the budget? Where is the law? The Constitution says that the legislature of Tamil Nadu approves the government of Tamil Nadu’s budget. Even the MPs of Tamil Nadu do not get to tell us; it is not their constitutional right. Then why does the MP from Varanasi get to tell the government of Tamil Nadu or the people of Tamil Nadu how their money should be spent.
If you are saying he is talking as an administrator, I say show us a [good] track record for why we should extra-constitutionally listen to somebody. If he talking as a politician, let him talk his own politics. That has nothing to do with me.
Q/ What impact has the free bus ride for women scheme had?
A/ It empowers them to work outside their homes, and to travel without waiting for anybody’s permission. It helps them balance work and life. So, women’s participation in the economy, and in social activities outside the home have profoundly improved.
Q/ So, this isn't a ‘freebie’?
A/ Again, 'freebie' is a meaningless term. If the PM is against it, why did the UP CM announce it last week? This is hypocrisy. You can’t say that if I do it's good and if you do the same thing, it is bad. I have already pointed this out.
Q/ Tamil Nadu is facing a resource crunch. How to sustain it in a market-driven economy?
A. The law says we cannot borrow more than three per cent or three and a half per cent of my GSDP. Where is the discussion in this? Can I borrow 12 per cent of my GSDP and worry about how I can pay it back? I have already got serious constraints on my ability to borrow and my ability to spend. What is this question of special burden? If you administer properly, you will have some more leverage. Administer badly, and you will have less leverage. We had an eight-year record revenue deficit. We took control of the system and reduced it last year. And this year, we will reduce it further. I am not for unlimited borrowing, unlimited spending, and unlimited budget. Every state has this problem. Every country has this problem. What is unique to Tamil Nadu? The only difference in Tamil Nadu is the 7-8 years of complete mismanagement and maladministration. I am not even accusing Ms Jayalalithaa of that. I am accusing the people who ran it after she went to jail in 2014 till 2021. The statistics back me up. The revenue deficit got worse every year. From 2014 till 2021, every year there was a new record revenue deficit. That put pressure, and increased every statistic - debt to GDP went from 16 per cent to 26 per cent. Interest revenue went from 11 per cent to 20 per cent. Those are things we need to bring down.
Q/ Tamil Nadu’s electricity board is in a complete mess. How are you going to address this crisis? Do you think subsidies and bailouts were the reason for this?
A/ I agree. But it's not a mess we created. We have already gone for rate revision, which has not been done in 15 years. We are trying to stop leakages. We are moving to smart meters, that can be monitored. So, efforts are underway.
The previous government took TNEB's debt from Rs 40,000 crore to Rs 1,45,000 crores in the last seven years. Then there is huge structural inefficiency. I am not making it political - it's probably because of the previous regimes, too.
Q/ Are you satisfied with the way the GST regime is working?
A/ From the conception of the GST to its design and implementation, all of it was done in a haphazard way. For example, the recent Supreme Court judgment saying that the GST Council is only a recommendatory board and it cannot supersede the powers of the legislature, is true. I will give another example. I am part of the group of ministers on casinos, horse racing and online gaming. I can understand online gaming should have a national policy and a national tax rate, because it's hard to say “online” is in just one state. But most casinos and horse racing are physically within one state. If I have a company that is into national casinos and horse racing, I can do it differently in different states and have subsidiaries and make them subject to state laws. So, when the regulation of such activities is with the state, why should such activities be under the GST; why can't they be under state taxation like petrol and diesel and alcohol?
If you look at goods that are traded inter-state, I can see why GST is there. Like milk, if it's produced in one state and sold nationally and there is a national tax, I can understand. But if the milk is from a village and sold to somebody in the village, why should there be a national tax? Why should the rate be the same in some village in Madurai district and some northern district.
So, the ambition was high but the execution has been deeply limited. And I say again and again that as a country we have not devoted enough time, resources and people to improve and execute it. There is a lot more to be done.
Q/ Non-BJP ruled states have been accusing the Centre of usurping their rights. That they are made to seek alms and ask the Centre to release funds. What do you have to say?
A/ I do not see it as non-BJP or BJP ruled states. I am saying all states. The Union government’s attitude has been that the states should serve as mere execution agents of the Union’s vision. This is contrary to the limited federalism designed in the Constitution. This is definitely contrary to the spirit of multilevel government. Nowhere in our Constitution had the founding fathers of our country envisioned that there would be a new colonial landlord in Delhi, telling everybody what to do and how to do it. In our Constitution, the state and the Union government are separate, but equal levels of government. One is not the subsidiary of the other.
So, the overall approach since 2014 is a direct assault and a direct attempt to subsidiarise the states. But what surprises me in all this is why the BJP chief ministers are not pushing back. Are the Uttar Pradesh or Gujarat chief ministers willing to sacrifice their state’s interests for the sake of party discipline? Why are they not talking about the rights of their states and the welfare of their people?
Q/ Do you think the regional parties who have been opposing the BJP are being harassed?
A/ If you ask me if there has been politicisation or weaponisation of the CBI, the ED, and agencies, the answer is absolutely yes. If you ask me whether a lot of people who were under such investigations, went into the BJP and came out clean, the answer is definitely yes. I do know that the ED and CBI have tens of thousands of backlogs, but are taking cases on opposition leaders.