PTR INTERVIEW | 'Expect reforms meant to increase revenue generation in Tamil Nadu budget'
The leakage is up to 50% in the TASMAC system. In commercial tax, it is up to 40-50%, TN Finance Minister Palanivel Thiagarajan says in an exclusive interview.
Published: 15th March 2022 12:05 AM | Last Updated: 15th March 2022 05:28 PM | A+A A-
As preparations are underway for his second Budget, Palanivel Thiagarajan (PTR), Finance Minister of Tamil Nadu, is seeking to plug the 'revenue problem' to bring the State economy back on track. He claims to have changed the administrative model in the finance department and how it manages the State's processes during the last 10 months in power. "We are taking steps to improve the situation. We have already announced some steps, and some more will come in the Budget," he says.
Here are excerpts from a two-hour-long exclusive interaction with The New Indian Express.
The rising revenue deficit has been a concern for Tamil Nadu. How are you addressing it? Can we expect some steep hikes in State taxes?
The primary problem we have is that we don't get adequate revenue in terms of a percentage of the economy (GSDP). We are not getting the revenue that we're supposed to get from commercial tax, mining, and liquor/excise, among others. We are losing tens of thousands of crores, with leakages running up to 2-3% of our GSDP. The leakage is up to 50% in the TASMAC system. In commercial tax, it is up to 40-50%. Every year in the policy statement, the Mining ministry says TN is one of the few States abundantly endowed with magnesite, granite, bauxite, limestone and garnet. It’s all true. And yet, the government never makes anything more than a few hundred crores of rupees annually in revenues.
These are all structural issues. We are taking steps to improve the situation. We have already announced some, and some more will come in the Budget.
How are you going to plug the leakages?
We think that the movement of alcohol outside the excise net is huge. Probably as high as 50%. We need to find a way to stop it, using better technologies and monitoring. The current system of holograms is ineffective. We still don’t have Point of Sale (PoS) terminals at our TASMAC outlets. The system needs to be improved fundamentally.
We have made a beginning. What we have done is that we have changed the administrative model in the finance department and how it manages the State's processes. We have started allocating money. But those things can't change overnight.
To fix the revenue problem, last year wasn't the right time anyway. It was a year of coming back from the pandemic. Then, we had heavy rains. We were not in a position to fix it aggressively. Next year will be a different story.
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So, fixing the revenue collection is going to be your prime focus?
You should expect some reforms to increase revenue generation. TN has a Bureau of Public Enterprises (BPE), a nodal agency supervising all the State PSUs, be it transport, power, etc. In the last few years, it has become ineffective. We will reinvigorate BPE.
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What was your focus during the last 10 months?
With all the engagement with the finance ministry officials, I have only focused on two things.
One, closing off 2021-22 as best as we can and ensuring that we have built administrative and system capability that will persist in the future and keep going that way. Second, I have a stated ambition to my finance secretary. In two years, I want our department to be the most professional finance department ever seen in the history of India since Independence. That improvement will last beyond my time in the seat.
I have focused on finishing this year properly to show that we have systems in place and that we are in control of the systems. I want to improve the business as usual (BAU) framework.
In the last few months, we have improved the administrative strength, capability and model significantly enough. The outcome may still be in the negative, but much better than the previous year. The Revised Estimates (RE) will show what a strong leadership under CM Stalin and what professional competency in the finance minister’s office can do.
Are you happy with your performance in the last 10 months?
The State economy was going in the wrong direction. We had to arrest that momentum first. It is like sailing a ship. Even after you stop the engine, the ship keeps moving in the same direction due to inertia.
We were hamstrung by many things during the first 10 months. The second wave of the pandemic was many times more powerful than the first. Then the third wave. We were coming to power after 10 years. Most of us are first-timers in the ministry. All of us were coming up the learning curve.
However, I'm satisfied that collectively, we have done a remarkable job given the constraints we had. The first 10 months mark the early stage. I believe in the Revised Estimates, we would prove that we are a different class, a different league.
What's your focus going forward?
We now have new areas of focus: financing of infrastructure and scaling up of investments, better management of PSUs, professionalisation of the administration, generation of revenues, and the restructuring of debt. So far, I had no time to look at debt management. My belief is that we can significantly improve the debt profile in terms of how much interest we pay.
And in other ways, you can measure the performance: how much Capex we do, how many jobs we create, how we cut down interest payments, and how do you bring in new investors.
As for next year, we have to keep progressing in the same direction. I want to revamp and automate systems, having cross-links, dashboards, better management units, improved delegation and a professional set-up.
What are the Centre’s economic policies that have impacted TN in the last few years?
As I stated earlier, there had been a steady decline at the national level in economic growth, job creation, or on any such measure over the past seven-plus years. This BJP government did the politics of illusion and tried changing the calculation model of GDP. But that could only give them a one-time reset unless they keep changing the model every year.
You take any measure, there is a decline. Whether under the new model of GDP calculation, NSSO survey, or the investment levels, the outcome is bad. Under job creation, the outcome is extremely bad. It looks like a lot of jobs were lost rather than creating some. So, if you look at the overall outcome, it is a failure of the economic policy.
What do you think are the major factors behind the failure?
There may be several minor reasons, but three are greatly contributing factors.
The first factor is that by far, policies were made either unilaterally, or without adequate consultation/planning and implementation. The prime example is demonetisation in 2016. It was completely uncalled for. It was self-inflicted damage of the worst kind since India’s Independence.
The next one is the four-hour notice to shut down the country decisively, during the Covid-19 first wave.
The third one is the rush to implement the GST system, without adequate preparation. There was no pilot project or a parallel system for six months in one State or half-a-dozen districts, to check the model and figure out what is right and wrong.
And then, a number of decisions taken after that. Shift away from progressive taxation to regressive taxation, reduction in corporate taxes and increasing the burden on the common man. So first one, bad policies of the government.
The second thing I would say is Delhi's move to usurp 100% control, and not bringing in States and local bodies as partners. There are several examples. For one, the shift to cesses and surcharges in the case of fuel retailing so that a lot of money flowed only to the Centre and was not shared with the States. Second, massive intrusion into State subjects via centrally-sponsored schemes. In every way, they tried to remove control away from the states and local bodies. It is simply impossible to monitor the effectiveness of applications, or validity, or audit/feedback at the scale of India. This is 100% guaranteed to be self-defeating. The profound hypocrisy is that PM Modi was one of the loudest voices explaining that the Union can succeed only if the States are engaged when he was Gujarat CM. Every State has a model and different plan for environmentally-sound growth. States are the place where the action will happen. The Union government is trying to do something that is simply not doable and so it will continue to experience policy failure.
The third broad mistake is that after trying to fudge the data, they have now stopped gathering data altogether. When fudging of data turned out to be too hard, or too transient, they have stopped collecting data. It is shocking the number of times Union ministries have responded to questions of MPs by saying that they do not have data. They have also stopped doing surveys. In some cases, they do the survey, but hide the results. So, this notion that you can make bad outcomes go away by not measuring data or by not publishing what you have measured, is again inherently self-defeating.
Every day, we are falling further behind. But they are somehow managing the image/public perception. My worry is that at some point, they can’t separate reality from puncturing through the phony image. One day, there could be a major reconciliation, and it may happen at a seismic level.
What are your takeaways from the Union Budget 2022?
There were some good things in the Budget and many not-so-good things. There was a fear that with the elections in five states around, including one of the most populous states, there may be some populist measures. But that didn’t happen since they had already rescinded the farm laws and cut fuel taxes by Rs10 after increasing them by more than Rs 20 in previous actions. It is fortunate that the Budget speech was read in English so that it could be understood by a broader section of the society and global investors. India is a big presence in the global market. There are many outside investors looking at the country. I was happy with the policy changes in the electric vehicle industry, as well as the plan to raise money through green bonds, and create jobs in those sustainable industries.
My major concern continues to be that it is a rich man's Budget. There was no real empathy or focus on the poor and the middle class. I also felt that some of the schemes are irrational and inexplicable.
School education is a State subject. Why is the Union government spending money to broadcast 'anything' to every school in the country, after we have understood the serious limitations and perils of remote education? The notions of 'One Class, One TV' and an e-university are illogical at best, or sinister at worst. Then it makes me worry if there is a conspiracy. Are they going to start broadcasting some content that is completely unscientific, and foist theories such as heart transplants took place in India 2,000 years ago and such insanity?
The same way, the 'One Nation, One Registration' programme seems misguided at best, or sinister if worse. It is a perverse intrusion into the states’ rights. But beyond that, it's illogical, irrational, and not executable. It is a mess that needs to be cleared up at the State and local level. Trying to force 'One Nation, One Registration' may end up creating a new low, one that could make demonetisation look like a "small problem" by comparison.