My first concern is liquidity, which is the biggest risk, says Palanivel Thiagarajan

Finance Minister raises doubts over substantial excise revenue having gone ‘missing’; he says cash assistance doesn’t amount to freebies

May 12, 2021 11:48 pm | Updated May 13, 2021 03:33 pm IST - CHENNAI

Palanivel  Thiagarajan, Minister for Finance and Human Resources Management.

Palanivel Thiagarajan, Minister for Finance and Human Resources Management.

Finance Minister P.T.R. Palanivel Thiagarajan, who has been given the task of reviving and restructuring the State’s economy by Chief Minister M.K. Stalin, says he is first getting his liquidity model worked out while focusing on releasing a White Paper on the State’s finances as early as possible.

In an interview at the Secretariat on Wednesday, he said that as per preliminary studies, a substantial amount of revenue the State used to earn from excise was no longer coming in. “What happened? Is there that much corruption in Tasmac? Where does the excise disappear,” he wondered. Edited excerpts:

As an Opposition MLA, you demanded a White Paper on the economy, alleging that the State’s finances were in bad shape. As the Finance Minister, what are you planning now?

My first step is to release a White Paper myself. If I, as an MLA and a former banker and managing director of a bank, do not understand how the State’s finances add up, how will the ordinary citizen understand? I could carry out an internal review and not release it to the public. But my leader [M.K. Stalin] is very clear. This is a transparent government and a government that takes the people along. So, we have decided to prepare a White Paper and release it to the public as soon as possible to show the true state of affairs.


How are you planning to overcome the current crisis?

My first concern is liquidity. We should not have a liquidity problem. I am not saying that there is a risk. You start with your highest risk first. The highest risk for anybody is always liquidity.

When you have so much debt and your interest cost and fixed cost are so high, the first question you ask is whether your liquidity is adequate. A State can never really go bankrupt. A State owns a lot of assets. It is only a question of cash flow and timing. The worry is whether we have enough liquidity to pay our bills on time. Do we have the flexibility to prioritise what we need to do when we need to do it? For example, in a crisis like this [COVID-19 pandemic], our first priority is to get cash into the hands of the people and get demand back up. What we have done is classic macro-economics. It is perverse to call this freebies. After getting my liquidity model worked out, my next concern would be current-year revenues and expenses. Then, I have to look at how we restructure for the long term. How do we come back to the good state we had in Tamil Nadu between 2004 and 2014, when we were in compliance with the Fiscal Responsibility Act (FRA), 2003? The revenue of the State should be 10.5% to 11% of GSDP. Then, we should get 3.5% from the Centre. Our interest payment to revenue ratio should go back to 12% or lower. We have to take our debt to GSDP [ratio] back to the 20% level. It is now around 25%. My main priority is revenue, interest containment and debt containment. If debt can be brought back to 18% or 17% of GSDP, as it was in 2014, then we can say we have done the restructuring of Tamil Nadu’s finances.

You used to allege that the AIADMK government used borrowings mostly to finance interest payments...

What FRA envisages is borrowing for capital investment: borrowing to build hospitals, schools, bridges, roads and ports. Even before the pandemic, if the AIADMK government borrowed one rupee, it used 50 paise to settle the revenue deficit and only 50 paise for capital investment. For the first time in the history of Tamil Nadu, we used borrowing to pay compulsory expenses and non-discretionary expenses like salary and interest. We have to get out of that business. I have to fix that.

You once said that while Odisha and Chhattisgarh were able to generate revenue through the mining sector, Tamil Nadu, which was blessed with natural resources, could generate only ₹900 crore through mine royalties...

Look at their Budgets and see what percentage of their income comes from the mining sector. I am asking one thing. I have already started this project. Between 2004 and 2014, the revenue was good, when we used to get between 10% and 11% of GSDP as revenue. How did we get it? How much did we get from Tasmac [liquor sale], mines, commercial tax, professional tax and registration and stamp duty? You need to have tables for different heads. Then, we would know from where it came and understand what has gone wrong. My preliminary studies suggest that a whole chunk of it used to come from excise, and that is now gone.

What happened? Is there that much corruption in Tasmac? Where does the excise disappear? I do not know. I have to find out.

So you’re saying we are not getting it?

Yes. I am not saying anything in rupee terms, but in terms of percentage of the economy. If the State is not getting 3% or 3.5% of GSDP into its hands, does that mean it is evaporating and going up in smoke into the sky? Of course not. It means it is staying with the wealth segment of society and not coming to the State. If the State collects it and spends it on public good and services like ration shops, drinking water, schools and old-age and widow pension, it is redistributed. If the State is not collecting [it], it is automatically creating inequality and denying inclusive growth.

On the one hand, you want to increase revenue, and on the other, you are expanding welfare measures....

There are two things. One is scale. There is a difference between giving ₹1 and ₹1 lakh to a person. The second is intent and circumstances. All these — what you call freebies or discounts — may add up to ₹10,000 crore or ₹20,000 crore in the worst case scenario. How much revenue am I missing? ₹70,000 crore. It was a lack of revenue management which resulted in this. How much interest am I paying every year? ₹45,000 crore. If I give money when there is a [COVID-19] lockdown, when demand has fallen off a cliff, most macro-economic professionals would say you are doing the right thing. It is actually in everybody’s interest to give money to the poor at this time.

Given the serious financial constraints caused by the changes in taxation after the implementation of GST, what are the avenues available to mobilise revenue?

I am going to find out where all these leakages are happening and fix it. Once we discover what the average income was as a percentage of GSDP from commercial tax, excise, mining, registration, stamps and different heads, the figures will be given to those departments as targets. They will be given as revenue targets to different Ministries. When was the last time this was done in Tamil Nadu?

Tamil Nadu has been seeking greater devolution from the Central pool, and there is a perception that States like Tamil Nadu, which have done well on human development metrics and demographically, have suffered in terms of devolution share...

We are not unpatriotic. We understand that under a federal government, States that are better off pay more in taxes and get back less. For 25 years, they have kept on taking more from us and kept on giving less to us. For 25 years, they have kept on giving more to Uttar Pradesh, Bihar and the northeast and getting less from them. What is the fruit of such transfers? They kept on taking more and more and we kept on growing better than other States. There is something structurally wrong. The track record of transfers or the lack of benefit of transfers has been appalling. How is it sustainable?

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