Palanivel Thiaga Rajan, TN IT Minister, speaks at THE WEEK Tamil Nadu Leadership Summit

0:00 So I just want to start by saying that around eight months ago, I thought I had the most challenging task. At the education summit, I was asked to talk to Dr. Shashi Tharoor on the English language. And just when I thought everything was settled, my team tells me that I got to talk to the minister about finance. So again, back to square one. So anyway, so I just want to start by asking you, so today, The second session is when Mr. Chitamaram spoke to us and he was talking about the disadvantage of a double-engine government, right? So he said, in a double-engine government, in that scenario, the state doesn't think, because you're all thinking the same pattern, it's better to be in the opposition.

0:49 So I'm just trying to put that in a GST framework, right? So in GST, is it better to be in a government that is a double-engine government or is it something better to be where you are in Tamil Nadu? MR. Look, I think, well, first of all, thanks for having me. And both of us went to the same school. So he's my junior, I have to say. It's a pleasure to talk to him on the stage. First, let's think about the money itself, right? I've said many times, there is no government in the history of India that has weaponized the distribution of public money politically as much as this government. They are blatant about it. Do what I say, otherwise you won't get

1:38 anything, even if it is legally legislated into the Finance and Appropriation Bill of the Government of India. If you don't follow extraneous conditions that are not in the bill, they won't give you the money. So that kind of abuse of authority has never been seen before. Now within that, there's two components of what the government of India gives you. One is the share of taxes, which is a formula decided by the Finance Commission, and then usually accepted and implemented, with the exception that they take out a whole bunch of cesses so that they don't actually share what they're supposed to. And then the second is up to them the discretion, which is this, grants and schemes. and they call them

2:23 centrally sponsored schemes. Now, this is a very nefarious concept. In fact, that also has been weaponized. But as my friend Thiru N. K. Singh, the chairman of the 15th Finance Commission, told me, why did you not protest when it was first introduced by the Congress? This notion of centrally sponsored schemes itself, one could argue, is not constitutionally valid. If it is a state subject, Why does the government of India form a scheme within that subject and then use its discretion to decide how much money should be given to which state? This is completely antithetical to the notion of a finance commission. Then you're giving them huge amount of discretion. But this is a sin that whichever party has had control of Delhi has committed. It's not unique

3:10 to the BJP. The Congress also did this. In fact, the Congress is the father of many of these usurping of powers to the center, as you know from the modification of the concurrent list back in during the emergency. So in that sense GST is a unique beast because in theory there's a council and in theory that council gets to be the ultimate authority. But that theory was broken to shards when the Prime Minister announced what was going to happen in the GST council before the GST council had met, right? And the GST council only met two times I think in the last two years. At least while I was a member, they had a pretense of calling the meeting every three

3:55 months as is required. But now it doesn't happen. So in effect, the GST is just another extension of the government of India. That's the voting pattern. If you want, I can get into the detail. And in fact, the double engine, which is the most salient question, the double engine is a boon in one way. because they will keep throwing more and more money at you and hoping that you can win re-election with those resources. Sometimes it comes as special grants just before the election like Bihar. Sometimes it comes in general increased funding like UP. I've said this before, but it's worth repeating here. Between 2014 and 2024, the ratio of money given to

4:40 UP compared to Tamil Nadu went from 290 for a rupee to 4. 30 for a rupee. And that one rupee 40 pausa extra above the trend line equals one lakh crores a year. Just that delta is one lakh crores a year. So that's the advantage in theory. They keep giving you money. The disadvantage is, I'll go even one step further than your point or the earlier person's point, that they are not expected to think. They have to toe the line of the government of India. And the government of India's natural proclivity is to centralize all power and say one nation, one X, one nation, one Y, one nation, one Z. Therefore, heaven forbid, you should start thinking for yourself that you want to have something unique for

5:28 your state. That is not kind of accepted. If I, without revealing confidences, if I say in my two years at the GST Council, there were occasions when other states' representatives would come to me and say, We cannot speak in the interest of the state precisely for the double engine reason because, and this is again a vestige of the past, that once you have one party that controls both Delhi and many states, the diktat of the party overrides the interest of the state. The problem with all parties everywhere, if you have both. But in that sense they would say, can you raise the issue

6:16 and then we'll line up behind you. So those are, I would say, the nuances of double engine without double engine. Right, it's a counter to that. You did say that. But then there is still pluses of being part of the thing. So say now in the 2025-26 GST collections, I think it's in surcharge, is almost about 4.25 lakh crores. That is in the federal thing, right? And this is where the states lose out. So how does a state like Tamil Nadu, so you're not going to get the favor of the central government, how does a state like Tamil Nadu other than do some property tax or liquor tax, how do you make up for this? Yeah, I mean, you have very few levers

7:02 left. That is why, for example, we refused this pressure to say let us bring petroleum and, you know, related products also under GST. Again, I would say think about it three different ways. The first is that GST is inherently a union government directed tax because of the structure of voting, because of the nature of, you know, and I've said it before. It's crazy that you should have one state, one vote in this system because all but some six states are net beneficiaries of taxes. Only a few of us pay more than we get back. And therefore, if you say by head count who all want to increase the tax, everybody's with you. If you say by politics who all want to oppose the central government,

7:49 you have to get at least 13 states together to cross that 26 percent threshold of the, to veto the 75. And it's a long story. By net result, the way GST works, it is the government of India's intent that comes out. There's nothing federal about it, number one. Number two, in the collection of GST, the system is mechanically broken. It is all collected by one entity, allegedly in Delhi, and then supposed to be divided and shared. They get to decide. There is no constitutional law, statutory framework on what day the collection should be sent to you. They will decide when they send it to you. They will decide how to calculate IGST. But it's supposed to be a platform for, you know, everyone shares their ideas of how it's going to be shared, every state. But that... No, that platform, to

8:36 be fair, works. In fact, it works so well... that in the GST Council we will find discussions about all kinds of things unrelated to GST because there's no other platform in the country where all the states and the union are sitting in the same platform. So in that sense, as a forum for dialogue, and I must give the union finance minister credit, she runs it very collegially and allows almost any minister, almost to a fault, to keep on talking for however long they want irrespective of whether they make sense or not. And these meetings run forever sometimes. But the substance of the work is done in a way that is not truly federal and is not truly participative. Therefore, I agree with you that, of course, because of the weaponization of public money, being a BJP-run state gives you more

9:25 money. But it comes, as I say, at the cost of no independent thinking. And GST is only a fragment of that because the total pool is substantively, in fact, I'll go even further, If you look at how much of our money comes as share of taxes and how much comes in these centrally sponsored schemes, especially after they did this capex, you know, this 50-year interest-free loan, they shifted the revenue spending to capex spending. If you look at that, that ratio has changed dramatically. At one point, of course, till they were centrally sponsored schemes, all our money from Delhi came as share of taxes. So it was 100-0. Then I would say, I don't have the numbers exactly in front of me, but let's say

10:11 when we came to, when I came to politics in 2016, it was probably two thirds taxes and one third schemes. Now it's probably gone 50-50. So they get even more flexibility because if it's schemes, they get to decide whether you're participating or not and to what extent. The extreme example of that is what they've done just now, right? To the MNREGA. They've completely made it their discretion. to decide how much they will fund to whom, when, how. That's just the perfect example of this grab of authority and money. Right. So would it make sense if the southern states come together and, you know, really come together and lobby together and who should take the lead for this? Yeah, I mean, I'm sorry I lost

11:01 track on your earlier question. Where do we make our money from if this is the case? I said if all this applies, you know, property liquor to make up for the sassies or charges. There's other ways. If you have a growing economy, you can get, you know, some benefits and multiplier effects and things like that. I'm not saying it's only property liquor. There's also petroleum. There's also other things. But relatively speaking, relative to when we control sales tax, our hands are completely tied. And that is because we don't have the discretion to, and in theory there is no, see this is again a problem with GST. Let us say the GST council mandates or agrees that this shall be the rate. Okay? How is that actually

11:47 implemented? It has two implementations. The first is legal. The second is actually practical or technical. Because GST-N is run by the government of India, The minute the GST council agrees, they don't even wait to see if the states go and carry out the necessary legislative reform. They immediately set the computer to say it will only charge at this rate and not accept anything else. Okay? But the Supreme Court has ruled that there is no way a kind of statutory body like the GST council can supersede a state legislature's right to do its own taxation. So, in theory, Let us say we all agree that product tech should be in 18%. And Tamil Nadu decides we don't like it. We're not going to legislate it. We're going to

12:35 do it at 12. Constitutionally, I'm still allowed to do it. The GST amendment does not bar me from doing it. The problem is there's only one platform on which you can file your GST return and get your e-way bill. That is GSTN. You go and say, in Tamil Nadu, I want to pay 12%, it'll reject your bill. So they have basically hijacked the legislative process through a technology and kind of execution model that subsumes the legislation against the constitution. So anyway, my point is we have limited avenues and still we're doing okay. That means we're figuring out somehow how to manage. I would say the two years, for example, that I was finance minister, our

13:21 growth rate was only seven, eight percent at best because we had second wave COVID, third wave COVID. We had a lot of kind of systemic shocks we had to overcome of the disruption of shutting everything down, which we had not done in a century. And yet, if you look at the improvement in our fisk in those two years, it was huge improvement. In fact, the only two years in the history of Tamil Nadu that you've seen that kind of improvement. So there's some value for execution, for capability, for systemic thinking. It can be done. The flip side is that it's completely unfair the way you're being targeted and the way that you're extra constitutionally, illegally being deprived of funds that were passed in the

14:08 parliament in the bill and then they don't send it to you. So in an ideal situation, like say if you have the kind of autonomy that you want for states, then what kind of accountability would you want yourself for the, for you to have an understanding with the center, if you have that kind of... I feel like I'm answering one question back late because I'm getting caught up with you. Going back to your question about Southern states and getting together and also this put in, let's put all of it together. I think what is primary, primarily required, or maybe I'll say two things. Two things that are essential. The first is the attitude of the union. that irrespective of who is elected in which

14:55 state, that we are partners in governance. It is no more about politics. Till you are in elections, it's about politics. Once you are in government, it's about administration, execution, delivery, outcomes, and you should all work together irrespective of political differences. Ironically, The culture is like that. If you look at even the parliament or the state legislatures, actually we all get along with each other. It's not, you know, like nobody thinks that they are, you know, virtuously unique and nobody is like, uh, unacceptably intolerable. Even now in the center? Even now, if you go to the parliament, like, uh, listen, I was in, uh, Delhi for, uh, the AI summit, um, and, uh, They seated me in a place that was

15:41 listed cabinet ministers and CMs. And behind me were probably the three men who run the government through PK Mishra, Shakti Kaat, Das and Ajit Doval. So they had no reason. They could have put me in the 100th row. Right? So I'm saying that the courtesies are there. But the execution is something completely different. In that sense, the first thing we need is the mindset to say, working together we can deliver much, much more than being combative, that politics should stop at the election and not go into governance. Well, that's not happening. That sadly is not happening with this government. The second thing I would say is, of course, we need multiple fora in which the states can coordinate with each other. And there are bits and

16:27 pieces. For example, the JST council is one. Also, every budget time, the union finance minister calls all the state finance ministers to have some discussions. What is more, all these fora are ceremonial, are mark attendance, put a tick box. They're not actually active fora. After I became IT minister, because there's no telecom ministry of the states, the IT ministries give the right away and manage the broadband infrastructure and pipes and stuff like that, cell towers. So the Telecom Minister, Mr. Sindhya, last two years alongside the India Mobile Congress calls for a meeting of all the state ministers with him. So this time I said, why do you only call this meeting once a year and only at the India Mobile Congress which is otherwise like

17:15 50,000 people going through the convention center, if you really want us to work together and we can do a lot working together, why don't you call this meeting every six months or every three months and do it in different places at different times instead of always calling us to Delhi because right now it's for the optics, right? In the heart of Bharat Mandavam or something, you'll do this. Then nothing will be discussed for a year. So I think we need both. We need a much better coordination between the union and the state irrespective of political party. And we need much more because we can learn a lot from each other. Some states do X well, some states do Y well. At least as far as the southern states are concerned, I would say irrespective of political party, we actually work decently well together, at least

18:03 on a one-to-one basis. I've said it before, I'll say it again. When I was finance minister, my close friends on the GST council, who continue to be my personal friends, were the finance ministers of Kerala, Telangana, Andhra, Karnataka, though it was Mr. Bomey who was of the BJP. good friends. Same way when I'm IT minister, I'm continuously in touch with all of them, whether it's Thirunaka Naralokesh or Sridhar Babu or KTR, his predecessor, or the Honorable CM in Kerala who has IT portfolio. So, or Priyankar Gay. So, you know, we do it because we personally go and seek it out. There should be a formal mechanism for it to happen that would actually add value. But what would be the ideal autonomy that you're

18:48 talking about? We spoke about coordination between the states. But as a state, say, suppose Tamil Nadu wanted autonomy as far as GST or something, what would be the ideal autonomy that you would want? Because you said it's not been perfect all these years anyway. What would be the ideal thing and what is the accountability that you will have to have with the center? I mean, that could be a dissertation in itself. So I'll answer two. two quick ways. I would say that as long as we had coalition governments, which was effectively from the late 80s till this BJP, in fact, the first BJP government was a coalition government, only the 2019 government was a simple majority. So let's say for those 30, 35 years, the coalition government served the purpose of some of this federalism because regional players had to be part

19:36 of the government and therefore there was moderation in the political dimension which resulted in relatively federalist approach. The second I would say is my chief minister has been seized of this point. What does good federalism and state autonomy look like? Because that is one of our core values as the DMK, as the Revitian movement. And so he constituted a committee under the former Leonard Judge Justice Joseph Kurian. with my good friend, former senior IIS officer Ashokwardhan Shetty and economic expert Professor Naganathan. They have submitted volume one. It's a brilliant read actually. I'll get you a copy. They have submitted volume one in English and Tamil and it's being translated to other languages where we have addressed

20:25 these issues. What should be legislatively different? What should be in terms of coordination mechanisms? What are the changes required for GST? though I had some input, in my opinion, doesn't go far enough. I would like 10 more changes, but it's actually a huge first step in what would a better federal model with greater autonomy to the states look like. It's a brilliant piece of work. I can't condense that in like 10 minutes. There's like 20 aspects of it, from legislation to governors to taxation to GST to so many aspects. Just to think on that, before I came to think I was just looking at what Google would say about how the GSTs affected the automobile sector. I put Tamil Nadu in particular. And

21:13 it said, now with EV growth is here, more jobs are happening here. If we took it right from one state to the other state, the duties brought up. Now if we look at small cars, motorbikes, 300cc, the duties brought up. So there are more and more people being employed in this sector in Tamil Nadu and Tamil Nadu has become the giant. But at the same time, it's consumer states that are benefiting from other reasons because of GST. So where should there be a fine line? I think you attribute or Gemini attributes way too much to GST. GST cannot be the cause of all these things. we were already a leader in automobiles. With or without GST, we were going to be

21:59 a leader in EVs. That's natural talent and the backlog we had in terms of strength of companies. I would say the broader question is, has GST been... It is clear that GST has one advantage, at least in theory, and one deep disadvantage. The first advantage is that it produces a nationwide rate of taxation and movement and standardization which otherwise was a patchwork of state by state. The clear primary negative is that it took away the independence of states to manage their taxation, their indirect taxation, and it did so in a way that effectively subjugated them to the union's diktat.

22:47 Now within that you say, what are the metrics we can look at to say, whether it has been at least revenue neutral and has it been a multiplier effect or a retardant? And they are correlated questions because the multiplier effect, revenue should go up. It is definitely not revenue neutral. And there I differ greatly with my friend Arvind Subramanian who's a great proponent of GST. I say GST in no way has been revenue neutral. Even, I won't say he's my good friend, but my acquaintance, the CEA now, in Delhi, Nageswaran, Anand Nageswaran. I don't agree that it has been revenue neutral. He took one blip out of some Tamil Nadu data for some random thing and it doesn't matter. Mathematically, GST

23:32 has caused a reduction in the indirect tax revenues of the states relative to how they run their own state taxes, at least for the better of states. Then the flip side is, is it working in such a way that it has become really easy to do business and most people who are businessmen or who are auditors will tell you that GST still has, you know, so many limitations. I've told you blatant violations. If you can tweak the computer before I have passed the bill, then you have subjugated the legislator's power. Right? That is not in the law. It's not in the constitution. And those are extreme examples. But in hundred ways, the system can be much better. In fact, I'll give the greatest accusation. It is simply a

24:21 lack of adequate resources. The GST Secretariat is an afterthought in the revenue department. It is staffed by people who do 10 other jobs. When the meeting is suddenly called for, they've suddenly realized they have all kinds of things. Nobody knows who's on the fitment committee, nobody knows on the law committee, what they decide, nobody decides the agenda. I don't, as a member for two years, I had no input into what should be on the agenda for the meeting. How is that a process? We ever consulted at the meeting? At the meeting, everybody gets to speak. But what is on the agenda for the meeting is never discussed ahead of time only. And you know when the agenda will come? And this I protested and they started making changes. Because madam takes input. When I first started, the meeting will be

25:07 announced today for four days from now. Tomorrow, the first agenda will come 300 pages. The day after, the second agenda will come 500 pages. The next day, the last agenda will come 200 pages. So, you will have all of three days to process 1,000 pages in an agenda. I said, this is not nonsense. You want to give us an agenda, you have to call the meeting minimum two weeks ahead of time. You have to finalize the agenda minimum a week ahead of time. None of these 20 or 30 odd ministers and finance, union finance minister have like free time to drop everything else they're doing and suddenly take this up. And in a lot of cases, these ministers are chief ministers or deputy chief ministers. Imagine the amount of workload they have. So what they're effectively implying is you're here

25:54 just as a ceremonial rubber stamp. We decide, we set the agenda, we fix all the numbers. You can talk whatever you want, then we'll decide whatever we want and then you'll all go home. The center's influence is like eventually, the center's influence. I just want to wind up by asking one last question because there's some IT people sitting here and the IT ministers here. It's not a thing, but if you compare Bangalore, so Bangalore started early, but if you look at someone like Hyderabad, the way you know, even Telang Khan and even where Andhra is pitching IT. Where do you see Tamil Nadu and what are your plans for you to be, you're a player in manufacturing and other things, what about IT related?

26:40 Yeah, I mean, it is a fact and sometimes though politicians are reluctant to accept facts, it is a fact that around the turn of the century we were the pioneer state. and Chennai probably city in IT. Then Chief Minister Leader Kalinger was the first one to come out with the IT incentive policy, set up a title park, create an IT department and a separate ministry and so forth. So statistically, if you look at let's say 1996 to 2026, in the 30 years, Our preeminent and dominant position doesn't exist anymore. If I say anything more than that, I'll get in trouble. In politics, you're not allowed to talk the truth. So we'll leave

27:26 that. The point is that nothing is permanent in the world. Everything is changing all the time. And in my view, whatever the neglect or the lack of structural vision that was done, mostly in the ADMK regime, can be corrected in this age of AI. We have a new kind of inflection point. This is the time when the industry is going to be shaped so differently, so dramatically, that the last 30 years may not matter. And we're already off to a good start in two, three ways. The first is that our registered startup number went up from something like 2,300 to 13,000 something in the last

28:13 four years. So we've actually started to see as the traditional IT services majors start to scale down, we have started to see this innovation come and because that is conscious effort by the government through Startup TN, through IT&T, through different festivals and conferences and stuff, I see many of these startups and they're very, very local, problem inspired local solution startups. These are not trying to solve problems in America, they're solving problems in their village, their district, their city. And so I'm really impressed at the quality of this innovation and the opportunities it provides. The second is that we have set up many venture capital programs First for certain

28:58 communities like SEST Venture Fund, also through the finance department when I was finance minister, something called the Emerging Sector Seed Fund, which is under our private equity platform called TNI FMC. So, it's not just encouragement and training and connectivity, but actually financing in all of these as well. So, these are signs of moving in the right direction. Also on education, we have tied up with the majors like Microsoft and Google to bring AI-related education down to the middle school level, not just at the college. And recently, the Chief Minister has started this 10 lakh laptops with perplexity and co-pilot loaded in them to final year

29:46 students. And next year, 10 lakh. And by the third year, we'll basically be giving every college student fully loaded AI laptop. We're also about to finish our version of BharatNet which is 100 Mbps fiber to the home in every village. I think given our strength in human capital with this fiber infrastructure plus this laptop plus these education programs, we are well poised. Were it up to me, I would make a special push in two dimensions. But it's not up to me, so I'm saying. One, that we must fundamentally create a kind of AI compute engine, which the

30:31 government of India is now trying to do that. But in my understanding, that's going to be not adequate. It's a good step, but it's not adequate. A state like Tamil Nadu, at the cost, relatively reasonable cost, could actually set up its own compute, shared resource compute engine, and use the massive data that all states have to create a vision for an AI. Most likely that will come in our manifesto, which our party is going to put out soon. The second I think is that college is good, high school is good, middle school is good. Actually, we should rethink education going all the way down to elementary school. Because in 20 years from now, what is required to be a good knowledge worker is going to be completely

31:20 different. It's going to take time. but it's going to be completely different. And now is our chance to leapfrog that problem by starting young. Well, thank you. So I think your minister deserves a big hand and also my schoolmate deserves a big hand. Thank you so much, sir, for coming for this. Thank you so much. Thanks for having me.