FinMin to take control of GSTN, snatch it from private player? How UPA ignored warnings

The Finance Ministry is alarmed by frequent cases of data breach and is looking at taking control of GSTN, a privately controlled company responsible for GST operations, DNA has learnt. Seven years ago, policymakers ignored warnings from top Finance Ministry officials against leaving GSTN to private players. Officials, including the then chairman of the Central Board of Excise and Customs (CBEC), had warned that it could be a threat to India’s economy and national security, reveal official records seen by DNA.    DNA has also learnt how lobbyists, under the UPA regime, forced the government to create this privately controlled company, GSTN SPV, to run India’s new indirect tax that came into force in July last year. 

“After data breach cases like those involving Cambridge Analytica, the ministry has realised that those officials were right,” said a senior official.  A committee that was supposed to discuss the risks never met. Lobbyists stalled any such discussions during sensitive meetings of CBEC, the body then responsible for all indirect taxes.  “Matter has not been placed before the full board at any time,” an official from CBEC remarked on a Finance Ministry file.  A senior ministry official said on condition of anonymity, “The issue of tax data risk under the proposed structure of GSTN was brought to the notice to Finance Ministers Pranab Mukherjee and P Chidambaram but everyone was in a hurry to create GSTN”. 

On October 21, 2011, CBEC member Sheila Sangwan said that data and privacy would be unsafe if the GST system was operated by a privately controlled company. She was representing CBEC in the Empowered Group (EG-IT) on GST led by Nandan Nilekani, co-founder of Infosys. 
GSTN in the hands of private operators, who will also be paying taxes, will create potential conflict of interest, Sheila warned the ministry via then CBEC Chairman SD Mazumdar.   

It is appropriate at this stage to flag this with the Revenue Secretary and the Finance Secretary so that they can take a final view on the proposed structure of GSTN, and the Finance Minister’s approval was also required, she alerted in her detail note.
On October 24, 2011, Mazumdar forwarded Sheila’s note to the ministry with his remarks: “Finance Secretary may kindly peruse these issues and concerns”. He further wrote that “It may also be necessary to flag these issues to the chairman of EC (Empowered committee-GST) of state finance ministers at the earliest”.

Mazumdar confirmed to DNA that he was also against the proposal of a privately controlled GSTN. “I agreed with Member (Computers), and proposed reconsidering all valid concerns, before preparing a draft Cabinet note on the matter. The matter was sent to the Revenue Secretary about a week before my retirement. Later, after my retirement, I came to know from media reports that the government overruled that view, and GSTN became a private company”, Mazumdar responded to an email sent by DNA. 

About a week before his retirement on October 31, 2011, he wrote to the Chairman of the Empowered Committee and the Revenue Secretary. But the file was held and sent back to him on the day of his retirement with direction to discuss.  Mazumdar wrote to his successor SK Goel to pursue the matter. Sources said to DNA that “within a week of joining, Goel disagreed with his predecessor and recommended for making GSTN a privately controlled company”. 

Later, another CBEC chairperson, Shanti Sundaram, also objected to making GSTN private but she failed.  On October 16, 2012, before the Cabinet note on GSTN, another CBEC member warned against the “privacy and secrecy of taxpayers’ data, misuse of which could be threat to economic and national security”.  Currently, the government holds 49 percent stake in GSTN — the Centre and states share 24.5 percent each — and the majority 51 percent is held by five non-government institutions — 11 percent by LIC Housing Finance and 10 percent each by HDFC, HDFC Bank, ICICI Bank and NSE Strategic Investment Co Ltd. 

The structure of GSTN was a brainchild of, Nandan Nilekani led, empowered group. Nilekani was appointed as chairman of the technical advisory group for a unique project (TAGUP) on June 1, 2010, by UPA government. Nilekani and his team were mandated to set up advance technical tools for five projects one of them was Goods and service tax (GST). On July 13, 2010, the government appointed an empowered group on IT infrastructure for GST (EG-IT) under the leadership of Nilekani. Nilekani suggested, to then finance minister Pranav Mukherjee, to create National Information Utility (NIU), a special purpose vehicle, to build and operate IT infrastructure. Nilekani and his team proposed GSTN--as a company controlled by private players but ‘strategically controlled’ by the government.

Email to Nandan Nilkeni did not elicit any response on the above issue yet. On August 19, 2011, Nilekani made first time a presentation on the structure of GSTN in the meeting of EG. Sheila Sangwan, who joined the CBEC as member budget and computers on August 18, 2011, could not attend the meeting. while Y G Parande who already got an extension to join advance ruling office stayed to attend that meeting. “What I recollected I have told by Nilekani that since I was part of the empowered group so I can join the meeting even after my new posting at advance rulings, “said Parande. 
Arun Sahu, Director General (system), note reveals that EC members have had taken up the concern of CBEC member Sheila Sangwan over data risk under the private structure of GSTN. EC said that “Keeping in the view that this company will be dealing with this sensitive and confidential government data, it is felt that ‘strategic control’ of the government should be properly defined and ensured”.

On September 20, 2011, Empowered Committee (EC), a body of state finance minister led by Shushil Modi, had formed a sub-committee to discuss the issues of data risk and privacy under proposed privately controlled GSTN. But “such committee has not met till date”, a committee member put it in the internal communication. On her notes on October 21, 2011, Sheila Sangwan said: “there was really no discussion” on data risk issue and GSTN structure in the meeting of the empowered committee of the state finance minister held on October 14, 2011. 
After ten months of GST’s implementation, Finance Minister Arun Jaitley has reportedly asked Revenue Secretary Hansmukh Adhiya to explore the possibilities of raise government stake in GSTN from 49% to up to 100% to thwart any potential data breach.  Nilekani is back to Infosys, the company that got an Rs 1,380-crore contract from GSTN.

(By Dipu Rai, DNA)