Once upon a time, when Narendra Modi was the chief minister of Gujarat, he constantly grumbled that too much of the state’s tax money was getting trucked off to New Delhi. He attacked the Centre for not sharing enough from the tax kitty for his state. He turned into a truly parochial satrap when he dared the Centre to stop its funds to the state and not collect any taxes from it in return. What he wanted was 50% share of central taxes for states.

But when Modi became the Prime Minister, one of the first things he did was to hold secret negotiations to cut states’ income. The details of this backdoor negotiation are what Shreegireesh Jalihal and Nitin Sethi bring to you as part of our latest story.

Immediately after becoming the Prime Minister in 2014, Modi held backdoor negotiations with the Finance Commission to massively cut tax funds allocated to states.

You know the Commission is an independent constitutional body, which sits every five years to decide states' shares from central taxes. Going by the Constitution, the government is not allowed to bargain with the Commission. But, Prime Minister Modi tried. 

The head of the Finance Commission, in his “good south Indian English” told the go-between in the secret negotiation: “Go and tell your boss (the Prime Minister) that he has no choice.”

Modi had no choice but to back off because he had no authority to negotiate with the Finance Commission.

This is one of the many startling revelations made by BVR Subrahmanyam, the current CEO of Niti Aayog and the go-between for Modi in the negotiation with Finance Commission head YV Reddy. Subrahmanyam even warned of a Hindenberg waiting to happen to the Union budget.

The Modi government had built up its first budget under the assumption that the Centre would be retaining a greater portion of the central taxes. The Finance Commission’s refusal to cut state’s income punched a big gaping hole in the government’s budget calculations. 

Believe it or not, the Centre had to redo its maiden budget in 48 hours, arbitrarily paring down budgetary allocation to groups that are considered dispensable for most of the governments: the poor, women and children.

And what did Modi say in Parliament? He said he welcomed with open arms what the Finance Commission had recommended as the legitimate share of the states.

Click here to read the revelations about arbitrariness and layers of obfuscation in budget-making and the Centre’s sleight of hand in choking the states of tax revenue.