PVR Subramaniam, former Secretary of the Prime Minister’s Office and the current Executive Officer of the Niti Aayog, has made a sensational allegation against Prime Minister Narendra Modi that he made negotiations with the Finance Commission of India, in tax distribution to cut down the funds for the states, immediately after he came to power in 2014.
Many state governments in India condemned the Union government for not properly distributing taxes and delay in giving the amount to the states. Because of this the state governments are unable to implement the welfare schemes. In this situation, this shocking information of Modi’s interruption with the Finance Commission to cut down the shares for the state came out.
Subramaniam shared this information while speaking at a seminar on financial reporting in India organized by the Center for Social and Economic Development (CSEP).
Allegations of Subramanian
Former Reserve Bank Governor YV Reddy was the Chairman of the 14h FCI in 2013, when Modi became Prime Minister for the first time. At that time Reddy submitted a recommendation in December 2014 regarding the distribution of funds to the states.
In the recommendation he mentioned that tax sharing for the states should be increased from 32% to 42%. According to the information shared by Subramanian, PM Modi insisted on reducing the tax distribution to 33%. Modi spoke to the finance committee chairman for 2 hours in this regard but Reddy did not agree.
According to the constitutional provisions, an independent Finance Commission decides the percentage of money the Union government should share with the states from its tax collection excluding the chess & surcharges. The government has only 2 options. One is to accept the recommendations of the Finance Commission or reject it and establish a new commission. But the government cannot correct or negotiate it.
Subramaniam confirmed that the negotiation between Modi and FCI Chairman was done through him. He also said that Even after the Prime Minister spoke, Reddy was not ready to slip from his position and give up. So the government was supposed to take the FCI recommendation of 42% share to the states.
After this the entire budget for the year was written in two days as the recommendation of FCI was accepted so late. Because of this last minute rush they halved the allocation of the budget including the fund for Central Ministry of Women and Child development from 36000 crore to 18000 crore to allocate budget for states.
Finding ways to cut down tax share to state
Once the Modi government came to know that they cannot convince FCl for reducing tax share to states, the government started to increase the cesses and surcharges. The Union government need not share any portion of the amount they get from these cesses and surcharges to the state government.
It is evident that during the Congress-led Union government in 2011-12, the share of cess and surcharges in tax collection was 10.4 percent. However, after the BJP government took charge in 2014, the contribution of cess and surcharge to the total tax collected by the Union government has increased to 18.4 percent.
The Union BJP government has also used GST as a way to destroy tax resources for states. After the introduction of GST in July 2017, state taxes were integrated into it.
Modi as CM & PM
Contradictorily, the 14th Finance Commission was constituted in 2013. At the same time, Narendra Modi, was the Chief Minister of Gujarat and was campaigning as the prime ministerial candidate and demanding the commission to give 50 percent share of Union taxes to the states. But the news that he took steps to reduce the status of the state after becoming the Prime Minister has now caused a shock.
This video of Subramaniam’s speech was released live on CSEP’s YouTube channel and has been viewed by 500 people. Based on that, an organization called Reporters Collective has questioned the Prime Minister’s Office about this. Now the video is removed from YouTube and It is also said that the Prime Minister’s Office has not given a proper response.
Opposition parties started to condemn BJP government and PM Modi after this.
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