How first-time FMs of Kerala, TN, Assam may impact Centre-state relation

Kerala, Tamil Nadu and Assam, all have first-time finance ministers. Aditi Phadnis looks at how they may impact Centre-state relation in terms of revenue and power-sharing

What do a district secretary of the Communist Party of India-Marxist (CPM), a former investment banker, and a life-long Congress politician who joined the BJP only in 2020 have in common?

They are all first-time finance ministers!

K N Balagopal (CPM) is Kerala’s new finance minister. Palanivel Thiagarajan will run the finance department in Tamil Nadu. And Ajanta Neog, as Assam’s finance minister, is the first woman to have ever got the job in the state. None has ever been a finance minister before.

But all of them have very strong opinions on how finances of their states should be managed. Add to that the unstinted support of their chief ministers, and in the days to come new voices and different opinions will come to be heard from the states.

One outcome of the elections in Assam, West Bengal, Kerala, Tamil Nadu, and Puducherry, was the rise of non-Congress, non-BJP parties. The Trinamool Congress (TMC) returned with a better mandate than before. The DMK won an unambiguous victory in Tamil Nadu. And the CPM-led Left Democratic Front (LDF) returned to power in Kerala. In Assam, the BJP retained power, while in Puducherry, it has now joined the (coalition) government.

Even in the past, West Bengal Finance Minister Amit Mitra (who has been named finance minister again) was one of the most prominent voices in raising issues relating to discrimination towards the state in financial matters. But now the Centre should be prepared for a bigger headache as two more leaders will add their voices to Mitra’s.

All these states can say loudly and bluntly what the BJP-ruled states can only mutter and sulkily complain about — that the Centre is appropriating more and more fiscal power while putting more financial responsibility on the shoulders of the state. Balagopal, for instance, is convinced that states’ power to collect revenue will be hit further as the Central government is working to bring alcohol and petroleum into the goods and services tax (GST) regime. “The central government is squeezing states as part of its policy. If that happens, it would further reduce states’ revenue,” he told reporters.

This opinion was buttressed by the Centre placing before the GST Council in 2020 two options for borrowing by states to meet the shortfall in GST revenue — pegged at Rs 2.35 trillion in FY21. Finance Minister Nirmala Sitharaman called the revenue shortfall "an act of God". The CPM had raged at the decision. "The Central government must borrow if need be and pay states their legitimate dues. Why should states borrow? ‘Cooperative Federalism’? Having destroyed the Indian economy, now looting states. Divine intervention?” CPM General Secretary Sitaram Yechury had tweeted.

For Balagopal, though, this was not an unexpected development. He had warned, as deputy leader of the CPM in the Rajya Sabha, that GST will eventually eat into the fiscal autonomy of states. In a dissent note to the GST Bill, he wrote: “GST will take away the rights of states to plan their revenues. Finance ministries, of both states and Centre, will end up as distributing agencies with no power to make policy decisions." This stance was in direct contradiction to that of then Kerala Finance Minister Thomas Isaac who had supported GST on the grounds that as a consumer state, GST, a destination tax, would benefit Kerala. Now it is Balagopal who is helming Kerala’s finances. And he has powerful advisors -- his brother, KN Harilal, a professor at the Thiruvananthapuram-based Centre for Development Studies (CDS), was a member of the Kerala Planning Board in the last LDF government.

Like Kerala, which has its own fiscal challenges, Tamil Nadu is facing tough times, too. The state’s debt stands at Rs 5.78 trillion and it is facing a financing crunch due to the ongoing pandemic. The state’s financial management needs out of the box thinking. Maybe an investment banker will be able to provide that.

Palanivel Thiagarajan (or PTR) joined Lehman Brothers in 2001 and became head of Offshore Capital Markets in 2008. He quit Standard Chartered Bank as managing director in 2014 and entered politics with his stint as the head of DMK’s IT Wing. He has the qualifications to handle state finances: An MBA in finance from the Sloan School of Management at MIT. He has already made his feelings clear about the Centre’s tendency to trample over state governments’ powers. “It is clear that we cannot resolve problems in our country with a single solution due to the scale of its diversity and complexity. Why should Delhi tell us when we should open our barbershops (during the lockdown)?… We have a structural problem, GST is only the financial aspect of it,” he said in a newspaper interview.

Of all the three new finance ministers, Neog is the most innocent. But then, her appointment is clearly because she is innocent. Chief Minister Himanta Biswa Sarma was finance Minister in the outgoing Sarbananda Sonowal government. It is he who has given Neog her new responsibility — possibly believing he will be the one doing the backseat driving. Neog, in a way, mimics Sarma’s political career. She was minister for Public Works Department, Urban Development and Housing, like Sarma, in the Congress government led by Tarun Gogoi. As she joined the BJP only in 2020, she is yet to develop an independent standing in the party — which suits Sarma just fine.

With Balagopal and PTR both active and vocal voices in favour of more financial autonomy to the states, it will be interesting to watch the trajectory this debate takes: and who knows, Neog might end up being an unintended beneficiary if they win.