Video lost! Who is hiding that Modi pressured the Finance Commission to cut states' share of tax revenue?

CONTEXT: Within hours of the Reporters’ Collective sending a questionnaire to the Prime Minister's Office, a publicly available video was shut down.

On Thursday, 18 January, a transcript of the video was purged too. Why?

The Reporter's Collective has now shared the transcript on X, in a tweet thread. Will it stay up?

We collected excerpts from the thread (edited for brevity and clarity in places).

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In a few weeks, the current govt will present its final budget before the polls. You'll read a lot of commentary on India's finances. But none will match what this official revealed. "The budget is covered in layers and layers of attempt to cover the truth," he said at one point.

To quote a post by a Reporter's Collective editor on X: 'Who is he? Meet BVR Subrahmanyam, CEO, Niti Aayog. He's a retired bureaucrat with a 4-decade long career that included stints at the PMO under Manmohan Singh and Modi. As you can guess, his words carry weight.'

In July 2023, Subrahmanyam was a speaker at a seminar on fiscal transparency, organised by the Centre for Social and Economic Progress. The seminar was live-streamed to CSEP's YouTube channel.

When it was his turn to speak, Subrahmanyam dropped quite a few bombshells.

He began by saying that the states' fiscal reporting was abysmal. But there was a reason they might be resorting to opacity, he held: they don't have much funds to begin with.

To get what he's saying, we'll first have to understand how funds are shared between the central and state governments.

The Constitution mandates a Finance Commission. Constituted once in five years, this Commission recommends the share of the central tax revenue that is to be shared with and distributed among the states. The 13th Finance Commission recommended 32 per cent of central government taxes be shared with the states.

In 2013, the 14th Finance Commission one was constituted. Narendra Modi was then chief minister of Gujarat. He targeted the UPA government then at the Centre and famously demanded that the states get 50 per cent of the country's taxes. A year later, he became prime minister.

In December 2014, the 14th Finance Commission submitted its report to the President. It recommended a 10 per cent increase in the states' share — that would make it 42 per cent of all that the Centre collects. It should have made Prime Minister Modi happy, surely, given his demand as erstwhile Gujarat chief minister?

But by now, unknown to the citizens, he had changed his mind. Subrahmanyam revealed that the prime minister got into a direct conversation with Y.V. Reddy, head of the Finance Commission, to 'suggest' he lower the recommendation.

Subrahmanyam was the only other person in the conversation, the NITI Aayog CEO claims. He revealed that the conversation took place over two hours. Reddy, however, was unrelenting. He told Subrahmanyam at one point, "Go and tell your boss he has no choice."

Why is this a big deal? Because the Cabinet can only accept or reject a recommendation. It cannot lobby for change.

The PM's attempt to 'negotiate' with the Commission was a breach of the Constitution. And this is the first time news of such a negotiation has come out into the open.

Eventually, the government had to accept the 42 per cent figure.

"It was accepted so late, so late that... four of us recast the entire budget in two days," Subrahmanyam said!

The government also halved funds allocated to welfare schemes for women, children and others in this rushed rewrite.

In Parliament, however, Modi boasted of how 'pro-states' his government was for agreeing to give away 42 per cent of its central tax revenues: "It's our commitment that states should be strengthened," he told Parliament and the people of India.

"Some states will not have treasuries big enough to keep all this money," he added, to a chorus of laughter from the BJP MPs.

And then the Union government resorted to another trick: In a first, per this top Union government official's admission, the Centre ramped up cesses and surcharges—a class of taxes that the Centre gets to keep for itself away from the states.

We have confirmed this with a fact check of the data. [This means that the Centre is now committed to pay 42 per cent to the states, yes, but from a smaller kitty, and enlarging its own reserved share.]

Subrahmanyam further lamented the fact that the states are being "increasingly choked for revenue" and post-GST, the states' "avenues for raising funds independent of some third party is also not there".

Opposition-ruled states have been saying this for years. Subrahmanyam has only confirmed it.

But that's not all. According to Subrahmanyam, Union budgets are "covered in layers and layers of attempt to cover the truth".

"We always wait for the Citibank or the JP Morgan analysis of the Indian budget. Because that actually unveils the truth in what the real situation is," he said.

At one point, he even said that if budgets are made transparent, he was "sure" that "you will have a Hindenburg who will open up the (government) accounts".

His Hindenburg remark came six months after the short-seller levelled allegations of accounting fraud against Adani Group. Subrahmanyam was also hinting at the possibility of something similar happening with government accounts if they were transparent.

An example is off-budget borrowings. These are loans raised by government-owned bodies that are not reflected in government budgets. But government resources are used to repay them.

While the Modi government, in a welcome move, disclosed such borrowings, Subrahmanyam says it's still far from painting a complete picture. "What is the time of the borrowing, amount of borrowing, timeline of the borrowing, interest rate? Nothing is known," he said.

This fact was highlighted by the CAG, the country's central auditor, as well.

In its 2022 report, the CAG red-flagged the off-budget borrowing disclosure statement for not appropriately disclosing a sum of Rs 1.69 trillion. It meant that India's debt—and therefore its fiscal deficit (the difference between revenue earned and expenditure)—may be in a worse place than we previously believed. This could be bad news for anyone looking to invest in India.

Subrahmanyam was once again echoing economists' concerns. His speech, sadly (for us citizens), got no attention.

(Nitin Sethi and Shreegireesh Jalihal wrote a report based on the seminar Sethi attended and the video recording of it available on the NGO’s website. While we have published edited excerpts from their posts on X above, the full transcript and video are available on Reporters' Collective's website here.)