Home » » The Meaning of the Attack on the CAG

The Meaning of the Attack on the CAG

Written By Krishna on Monday, September 17, 2012 | 8:00 AM

The office of the Comptroller and Auditor General (CAG) is an essential instrument for enforcing the accountability of the executive to Parliament. It is wrong, as in the coal blocks and other recent cases, to cast aspersions on the CAG for pointing out the omissions and commissions of the government. The office of the CAG has done what it is expected to do as a guardian of national Nance. Unfortunately the issue has got politicized with the leading opposition party upping the ante. The recent CAG's reports will have served their purpose if attention is drawn to some critical policy issues on the role and conduct of private sector in infrastructure development.

The Comptroller and Auditor General's (CAG) report on allocation of coal blocks has become a subject of acrimonious debate all over the country. The opposition Bharatiya Janata Party (BJP) has stalled the working of Parliament and has demanded the resignation of Prime Minister Manmohan Singh. The ruling Congress has been defending its action and the prime minster has taken the unprecedented step of making a statement in the House and has observed that the report is fl awed and disputable. Charges have been made that the CAG has overstepped his mandate. The controversy raises a vital issue about the role and function of the CAG.

Let us rest look at the main contents of three reports submitted in the monsoon
Session of Parliament relating to allocation of coal blocks, mega power projects and private participation in the Indira Gandhi Airport.

Allocation of Coal Blocks

The country is facing a severe shortage of electricity largely due to inadequate production of coal, which is the main raw material for thermal power projects. The production is around 560 million tons (mt) against a demand of 650 mt and the balance is met by imports. The country is currently importing about 75 mt of coal (costing around $6,700 million), which may go up to 100 mt, and this has
put severe pressure on foreign exchange resources. The government has formulated a policy that private players may be brought in for production of coal as public sector Coal India and its subsidiaries are unable to meet the demand. The CAG report highlights the fact that the manner of allotment of coal blocks was nontransparent and lacked rational criteria and resulted in huge inimical benefit to the Allottees. The issue of competitive bidding was under consideration of the Ministry of Coal since 2004 and could have been introduced by July 2006 when the Ministry of Law had given its clearance, but the government kept dilly- dallying and continued to follow arbitrary procedures. Hardly any coal has been produced from the mines allocated, although there was a condition that open cast mines should produce within 36 months and underground mines within 48 months from the date of issue of letter of allocation.

A system of bank guarantees to ensure timely production of coal was introduced
but hardly any bank guarantee has been encashed and most of them have lapsed.
Thus the mines were allocated almost free, and the Allottees could sit on valuable reserves without any liability (except that they had to pay a small fee as development charges and would be required to pay royalty to states when production commences). The value of coal reserves over the entire life cycle of the mines, which has been allocated to 57 parties, if marketed, could earn a surplus of Rs 1.86 lakh crore, at current prices, if calculated on the normative basis of the difference between cost of production and sale price.

How a private player can derive extraordinary beets through discretionary
allotment becomes evident in the manner in which coal blocks have been allocated for power projects owned by Reliance Power (RPL). Out of four contracts for ultra mega power projects three, including in Sasan, have been bagged by RPL with 3,960 MW capacity each. While awarding the contract to RPL, several bid conditions such as equity holding, net worth, etc, were diluted. Two coal mines were allocated for Sasan and a tariff of Rs 1.196 per unit axed for a 20-year-period. Subsequently, a third coal block Chhatrasal which was not included in the bid proposal, was also allocated to Sasan, after deallocating it from the National Thermal Power Corporation (NTPC), and a special dispensation given that surplus coal could be used for the Chitrangi projects. As the tariff for these two plants in Madhya Pradesh and Uttar Pradesh has been axed due to the fact that they have to source coal from the market, RPL will get the Benet of using 9 mt of coal annually from the captive mines of Sasan plant, which would help in substantially reducing the cost of production of electricity. Due to this beneficient allocation of coal, the electricity when sold will yield financial gain to Reliance to the tune of Rs 29,033 crore, over the 20 years life of the contract, whose present net value is Rs 11,852 crore. The prime minster in his statement in the House has rebutted CAG's findings. The auction route could not be adopted due to the compulsion of federalism as many state governments had opposed it. Further, the Mines and Minerals (Development and Regulation) Act had to be amended before resorting to a bidding process and this took considerable time. It is dif-fi cult to accept this logic.

If the government had the necessary "will" it could have introduced an auction system, which was well within its executive power. It dragged its feet and continued with the policy of discretionary allotment as it yielded huge rents to those in power, as has been coming out in the media both electronic and printed. The prime minister has also pointed out that the quantum of inimical benefit, which has accrued to private players, is exaggerated and can be disputed. Yes it is true that the quantum of inimical Benet pointed out by CAG may not be the best estimate. There are a large number of methods by which inimical valuation of a company or natural resource or asset can be done – the port earning method; asset-oriented method; earning capacity method; and discounted cash flow method. But that does not take away the main thrust of the report that there has been substantial loss to the public exchequer.

PPP at Delhi Airport.

The CAG's report points out that huge concessions were given to Delhi International Airports (DIAL), which is a joint venture company in which the government undertaking – Airport Authority of India (AAI) – has a 26% stake and GMR Group has a 74% stake in development and operation of the Indira Gandhi Airport. Out of the capital expenditure of Rs 12,857 crore the promoter GMR has put in capital of Rs 1,813 crore only by way of equity, the balance was nuanced through loans; security deposits and collections from passengers as a development fee. By putting in less than 20% of capital investment the GMR Group has acquired complete control on the operation of the airport.

Under the original agreement the DIAL was to arrange full financing of the project, but a post-contract benefit was provided by permitting it to levy a development fee from passengers. The company has collected Rs 3,415 crore on this account, which has imposed an additional burden on passengers.

The original contract with DIAL envisaged a 30-year-period for the contract, with a proviso that it can be extended by another 30 years subject to mutual agreement and negotiation of terms. However, in the anal agreement this clause was omitted and DIAL has been given sole right to operate for 60 years without any review of the terms. Under the agreement, the DIAL has been permitted use of 5% of 4,799 acres of land with AAI, for commercial exploitation, which works out to 240 acres. For use of commercial land DIAL was charged hardly any money – it was required to make a one-time payment of Rs 31 lakh and an annual lease rent of Rs 100. The current value of land available to DIAL for commercial exploitation is estimated at Rs 24,000 crore and has a projected earning capacity of Rs 1,63,557 crore during the contract period. It is evident that the Ministry of Civil Aviation went overboard to grant concessions and favors to DIAL in total detriment to the interest of AAI and the government.

CAG's Role

The government has been very uncomfortable with the audit endings. In order to defend its position, some members of the ruling party have raised questions about CAG's jurisdiction and observed that he has exceeded his mandate. What is the veracity of such criticism?

The CAG's role should be viewed in the context of our constitutional scheme under which the executive is accountable to Parliament. CAG is an essential instrument for enforcing the accountability mechanism as the CAG's reports on g government's stewardship of public Nance are required to be placed in Parliament and state legislatures under Article 151 of the Constitution. To enable him to discharge this responsibility, without fear or favor, he has been given an independent status under Article 148 analogous to that of a Supreme Court judge. B R Ambedkar observed in Constituent Assembly that he is "probably the most important officer in the Constitution of India, and his duties are far more important than the duties even of the judiciary".

Rajendra Prasad, the first president, had commented that CAG "has the power to
call to account any officer, however highly placed, so far as State money is concerned". In India we have adopted the British system of parliamentary democracy. Britain had to undergo centuries of struggle to secure Parliament's supremacy over the executive (monarchy), dating back to Magna Carta (1215) and Bill of Rights (1688) and measures such as enactment of the Exchequer and the Audit Act of 1866, which created an independent offi ce of CAG, who would audit all government departments and make a report to Parliament to be examined by its Public Accounts Committee (PAC).

The institution of public audit has been evolving all over the world in keeping with the deepening of democracy and need for greater accountability of government in view of its increased role in a complex globalised economic environment. In order to strengthen parliamentary control, the UK Audit Act was amended in 1983 and the CAG made an Officer of the House of Commons and legal backing given to him for conducting
economy, efficiency and effectiveness audit.

During the 1990s, all the advanced Commonwealth countries such as Australia and New Zealand amended their audit acts and made provision similar to that of the UK, and made the CAG an officer of Parliament with powers to conduct an efficiency audit of government operations. The US Government Accountability Office since its inception has been recognized as a legislative branch agency and reports on a wide variety of subjects from federal fiscal issues and debt control to aviation security, gun control and counterterrorism matters.

In continental countries such as France, Germany, Italy, Austria and Belgium, there is a system of audit courts, which while performing functions of expenditure control on behalf of Parliament, e njoy wide powers and act like judicial bodies. The French Cour des Comptes is assisted by the prosecutor general responsible for providing legal advice, and has power to recover improperly expended public funds or cash deficit from defaulting officers.

Most democratic countries have a statutory provision of securing Parliament's consent for appointment of the head of the supreme audit institution (SAI). Not only Commonwealth countries such as UK, Canada and New Zealand, but countries with such diverse political systems as the US, Germany, Japan, South Korea, South Africa and Thailand have this requirement and the appointment of head of SAI is ratified by their legislature. This is in recognition of the fact that SAIs have to do very delicate work, while commenting on deeds and misdeeds of the government, a task which they can perform effectively only when they are given not only independence from the executive but parliamentary backing as well. Because of the sensitive nature of the work of public audit friction and tension can arise with the government. Franz Fiedler, Secretary General of the International Organisation of Supreme Audit Institutions (INTOSAI) and president of the Austrian Court of Audit observes, Unlike the classical model of the constitutional state with its traditional juxtaposition of Parliament and the government, the dividing line in many modern parliamentary democracies no longer runs between Parliament as a whole and the government, but between the parliamentary opposition, on the one hand, and the government and the governing parties on the other…The parliamentary groups of the governing parties take an overriding interest in keeping the government in power and in expressing its solidarity with it, as the political destiny of the governing parties and their representatives is inseparably linked to that of the government.

Hence, it is no surprise that members of Parliament representing the governing parties rarely muster the courage to support the criticism by the SAI, let alone use of the arsenal of parliamentary instruments to control and/or sanction the government.

Therefore, it remains primarily for the parliamentary opposition to take up the reports of the SAI and use the finding and the criticism they contain as a weapon not only in parliamentary debate, but also in the context of other domestic policy issues. It goes without saying that the opposition parties – just like the governing parties with their opposing interests – are motivated by practical considerations of party politics rather that declared interest in government audit. Nevertheless, there is a convergence of interests between government audit and the parliamentary opposition.

Fiedler elucidates that criticism of audit is unfounded as politicians react to
audit reports according to their party affiliation. The situation often results in
confrontation between the parliamentarians of the ruling party and the representatives of SAI. "In many cases it is not the audited body which has to justify the behavior it is blamed for, but the SAI that has to defend its own criticism". The international practice regarding SAIs and our own laws and precedents makes it amply clear that the CAG has been acting well within the parameter of his duty as envisaged in the Constitution.
Much of the criticism about his role is based on an inadequate appreciation of
his role in a fast changing economic environment, which requires greater vigilance over governmental operations and enhanced accountability over actions of public functionaries for larger public good. Unfortunately the issue has got politicized.

Sensing political advantage the leading opposition party has upped the ante and
has demanded the prime minister's resignation and the government had to come
out with its defence. The statement of the prime minister should therefore be understood in the context of a political compulsion to defend the action of the government. A desirable course of action would have been to discuss the report in the PAC as per established procedure and await its outcome. The PAC is expected to work objectively on non-party lines, free from the passions of parliamentary debate.

As the present circumstances are unusual, it is the responsibility of the government, its ministers and other senior party functionaries not to denigrate the CAG, as it may cause long-term damage to an institution, which is an integral part of our parliamentary framework.

The CAG's report would serve its purpose, if attention is drawn to some critical policy issues, beyond malfeasance of public functionaries – the role and conduct of private sector in infrastructure development in areas such as coal exploration, electricity generation and airport development. Surely it cannot be the intention of government to reduce the role of Coal India, NTPC and other public sector undertakings by not providing them adequate support and level playing ground. It must be recognized that there is enough scope for both the public and private sectors in the country's economic development in view of our vast infrastructural needs. But should the private sector be allowed to thrive and corner valuable national resources at the cost of public interest and the public exchequer?

Today, the situation that has emerged is a typical case of "privatization of profit and nationalization of loss", to use economist J K Galbraith's terminology. It is no use casting aspersions on the CAG for pointing his finger at omissions and commissions of the government, what he is expected to do, as a guardian of national finance. An attempt to undermine the institution of CAG will dilute the government's accountability to Parliament, a fundamental principle on which our parliamentary democracy rests.


1 Report of the Comptroller and Auditor General, Year 2011-12: Allocation of Coal Blocks and Augmentation of Coal Production, Ministry of Coal, Report No 7; Ultra Mega Power Projects under Special Purpose Vehicle, Ministry of Power, Report No 6; Implementation of Public Private Partnership, Indira Gandhi International Airport, Delhi, Ministry of Civil Aviation, No 5.

2 For the position and status of supreme audit institution in various countries see: B P Mathur: Government Accountability and Public Audit (New Delhi: Uppal Publishing House), 2007, and INTOSAI website.

3 Franz Fiedler, "The Independence of Supreme Audit Institutions"; INTOSAI: 50 Years (1953-2003).

B P Mathur

The author has worked as Deputy Comptroller and Auditor General, Government of India. He is the author of the book Government Accountability and Public Audit.

Economic & Political Weekly EPW September 15, 2012 vol xlviI no 3713

Who is the Executive? Council of ministers must be stable and responsible

Amitabh Mukhopadhyay
There is an old Chinese saying: when the finger points at the moon, the idiot looks at the finger. In his article, `Can't Have Multiple Executives' carried by Times of India on 15th September 2012, Kapil Sibal glares like a schoolboy at the accountability demanded by the CAG and Supreme Court from a Council of Ministers. Except him, nobody imagines there is a constitutional crisis at hand. The country is worried about the irresponsibility and instability of the Council. Most people believe there is a national crisis precipitated by a shameless bunch of Ministers in a precarious alliance of parties and the absence of an instrument with the people to recall the deputies they elected in 2009 to serve them in the national legislature.

To pacify public alarm at the revelations about the villainy of some Ministers reported on by CAG in the 2G cases, Sibal trotted out a `zero loss theory'. Thankfully, neither the people, nor the courts believed him. Having learnt that you might fool some people sometimes but not all the people all the time, in the face of a report on rampant irregularities and impropriety of the Council of Ministers in coal block allocations tabled by CAG, the learned lawyer is trying to now spread a false alarm among the educated classes by raising the bogey of a constitutional crisis. The patchwork fabric of his deception needs to be examined threadbare for us to address the real, national crisis.

Mercifully, our Constitution is clear enough to deliver us from the evil of an imaginary constitutional crisis. It is useful for us to first appreciate precisely who or what constitutes the `Executive'. Article 53 of our Constitution categorically vests the Executive power of the Union with the President. No doubt the President is bound to act on the advice of the Cabinet, but that does not reduce a parliamentary system of government into a presidential form. It is important to remember that our Constitution does not recognise the doctrine of separation of powers between the executive and the legislature as obtains in US. In order that Ministers are responsible to Parliament and to the sovereign people, the Ministers are required, first and foremost, to be members of the legislature. They sit as equals with other members to debate policies and pass laws.

In fact, in our scheme of things, the Executive power of the President is the residue of functions of government after the legislative and judicial powers have been discharged. And it has to be exercised in accordance with the Constitution. It is only when we speak loosely that we say that the government runs the country and it is also known as the Executive. And loose talk is what Sibal uses to obfuscate issues.

Since the honorable Minister and learned lawyer is allergic to any participation of the CAG and Supreme Court in what he imagines to be his exclusive domain of determining `policies', it helps to ask: what, precisely, are policies?

The term `policy' usually implies some long-term purpose in a broad subject field (e.g. nationalization or privatization of coal mining), not a series of ad-hoc decisions. Sometimes, however, we conceive of policy not so much as actively purpose oriented but rather as a fairly cohesive set of responses to a problem that has arisen (e.g. competitive bidding for any procurement). In the sphere of government activities, there are laws, rules, plans, programmes and projects, each of these in succession being a little more short-term, more specific in place and timing than the previous and each successively more executive rather than legislative. The crucial difference, however, is that laws, including rules/bye-laws/regulations made by delegated authority of laws, are imperative directions embodied in an Act which in the form of a Bill have been regularly debated and passed by duly constituted legislatures in the prescribed manner and assented to by the President and are binding on every citizen, which the courts charged with the duty to ensure respect for law are bound to enforce.

The existing judgments of courts and the opinions of constitutional authorities have to necessarily be taken into account by the Council of Ministers and by private members while framing or formulating such policies as law. Sibal must remember that a Minister can only suggest and introduce a law; it is the House that passes it and therefore, `making policy' is a misleading term, best reserved for street-fights.

The Council of Ministers, by themselves, can only decide on matters under the delegated authority of policies that are law, in limited fields of their application. For example, FDI in multi-brand retail has been allowed recently by them through the Foreign Investment Promotion Board, under authority delegated by company law and of the law governing the RBI. This policy is not binding on State Governments, let alone citizens who would be choosing between shops. Members of the legislature are nevertheless visibly posturing against this policy and the shaky alliance is taking head counts every day. There's the rub of instability of the Council of Ministers, as far as people are concerned.

Sibal's rhetoric is chaotic. He says, "Whether or not a particular natural resource is to be auctioned is not for the CAG to decide". Is it anybody's case that CAG should decide policy? No. The right question would be to ask whether CAG could influence policy. Yes, he can and should, as he has been doing for long years since the PAC of the second Lok Sabha requested him to undertake performance audit and especially when the systems-based audit of revenues began in the 1960s which, on the recommendations of the PAC, helped Ministry of Finance to move amendments to Acts, rules and procedures.

Sibal's quixotic charging at windmills might provide grist for the mill of a cartoonist, but it does not in any way affect the CAG who has legitimately pointed out that it was the Council of Ministers that decided the auction route for allocation of coal blocks was the best idea and then dithered for long enough till the birds had flown with the booty. He has alerted the President and the House about the rampant irregularities in allocation and the impropriety of the Prime Minster, as Coal Minister, in presiding over these irregularities. The import of CAG's report is that citizens expected an office-holder like the Prime Minister to do better than that.

At a time when the fiscal deficit is pulling the financial credit-worthiness of the country down, it is downright shocking to read, "Governments are not in the business of maximizing revenues. Instead of filling its own pockets, it is obliged, in a welfare state, to fill the pockets of the aam aadmi." Facts show that the government of the day has been filling the pockets of its own cronies. While the aam aadmi agitates on the streets to protest diesel price hikes, unsure whether a Mr. Sibal will come by to pinch their pockets or to benevolently fill them, the Minister is yet to wake up to the fact that his Prime Minister has abandoned the idea of a welfare state two decades ago and ushered in the rigors of a fully-fledged capitalist state.

No, Minister, it is you who are pulling wool over people's eyes. It is you who is the imposter, parading yourself in clothes of the Executive, which rightfully belong to the President in a parliamentary scheme of things. It is you who is trying to deny the right of every citizen to participate through the legislatures and contribute to enlightened policy formulation. It is you who are saying the Judiciary should not take cognizance of illegality. It is you who are spreading canards that the CAG and the Justices are not accountable when you know they can be impeached while you can go scot free, merrily shrugging off electoral defeat by saying "Ýe sab to hota rahta hei" on TV shows.

The author is a former civil servant
Share this article :

Post a Comment

Copyright © 2013. ToxicsWatch, Journal of Earth, Science, Economy and Justice - All Rights Reserved
Proudly powered by Blogger