PMO tried to reduce states’ share in taxes from 42 to 33 per cent

Hours after The Reporters’ Collective sent queries to the PMO (prime minister's office), the finance ministry, and the NITI Aayog via a video posted on the YouTube channel of the NGO Centre for Social and Economic Progress (CSEP), public access to the video was barred, reported Shreegireesh Jalihal and Nitin Sethi of the collective on Thursday.

While the reason can only be a matter of conjecture, the video provided damning insights into the functioning of the PMO, the finance ministry, and NITI Aayog. The CEO of the Aayog, B.V.R. Subrahmanyam, who was then a joint secretary in the PMO, was heard claiming that PM Modi himself tried to influence the chairman of the 14th Finance Commission Y.V. Reddy — a former governor of the Reserve Bank of India — to slash the share of states in central taxes to 33 per cent.

The 14th FC, set up in 2013, had submitted its report in December 2014, recommending raising the states’ share from the prevailing 32 per cent to 42 per cent. Subrahmanyan, however, claimed that in a tripartite discussion between Dr Reddy, him and the PM, with nobody from the finance ministry present, Dr Reddy was asked to review and reconsider the recommendation. The PM wanted the percentage to be around 33 per cent or a figure close to it.

Dr Reddy, however, refused to cede any ground and explained the FC’s rationale in recommending raising the states’ share to 42 per cent — finally telling the bureaucrat, as Subrahmanyan recalled, “Appa (brother), go and tell your boss that he has no choice”.

Having failed to convince Dr Reddy to review and revise the recommendation, the PM made a virtue of necessity and tried to corner credit for raising the share of the states to 42 per cent. The PM told Parliament in February 2015 that though members of the FC were divided on the issue, he had prevailed because states needed to have resources.

A few other damning claims made by Subrahmanyan, the report lists, are the following:

1. The Union budget for 2015-16 was finalised in two days by four bureaucrats sitting in a conference room at the NITI Aayog.

2. Union and state budgets are subjected to accounting tricks and even fraud, and fudging to hide the real picture

3. There are ‘layers and layers of attempts to cover the truth’ in the budget papers and a Hindenburg-like research would unravel the truth

4. Thwarted by the 14th FC, the Union government resorted to imposing central cess and surcharges which are not required to be shared with the states.     

Truly enough, while central cess and surcharges comprised 8.6 per cent of the Union government’s gross revenue in 2010-11, it had gone up to 28 per cent in 2022.

Finance minister Nirmala Sitharaman had informed Parliament that while in 2021-22, the Centre collected gross tax revenue of Rs 27 lakh crore, Rs 7.6 lakh crore was collected through different surcharges and cesses. While the finance minister claimed that the high figure was due to the ‘GST compensation cess’ which helped the Centre to pay the states, GST compensation cess collection for 2021-22 was only Rs 1.05 lakh crore.

States, particularly opposition-ruled states, have been complaining of being choked for funds by the Centre. They have also pointed to long delays in paying GST compensation.

Eight hours after the Reporters’ Collective report came out, there has been no reaction yet from the PMO, the finance ministry or the NITI Aayog.