Why the CAG is wrong

By Manish Tewari

It has no constitutional mandate to make its own policy prescriptions and then utilise them to compute notional loss or gain

What is the constitutional and legal remit of the Comptroller and Auditor General of India — the ubiquitous and omniscient CAG? In other words, what does the Constitution and the law enjoin upon it to do?

Article 149 of the Constitution is the fountainhead from where the CAG draws its legal sustenance. It would be worth its while to reproduce it in full: “The Comptroller and Auditor General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the states and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the states as were conferred on or exercisable by the Auditor General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and the provinces respectively”.

A bare perusal of this provision makes it amply clear that the founding fathers circumscribed the extent of the CAG’s powers only to such duties and powers in relation to the accounts of the Union and states and had further qualified the mandate by explicitly stating that, pending the enactment of a law by Parliament in this regard, the CAG would perform only such duties as were performed by the Auditor General in relation to the accounts of the Dominion of India and the provinces respectively before the commencement of the Constitution. Mark the emphasis on accounts and the clear absence of a remit to audit policy.

This constitutional directive held the field till 1971 when Parliament enacted the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act 1971. The act was last amended in 1994.

Chapter III, Sections 10 to 17, list the statutory mandate of the institution. It can be summarised as: a) to audit all money paid into and expanded from the consolidated fund of the Union and that of the states/ Union Territories; b) to audit all transactions of the Union and of the states relating to contingency funds and Public Accounts; c) to audit all trading, profit and loss accounts and balance sheets and other subsidiary accounts kept in any department of the Union or the state; d) to audit the accounts of bodies or authorities substantially financed by government; e) to audit accounts of government companies, statutory corporations which have provision for audit by him and other bodies and authorities, even though not substantially financed by government at the request of the President/ Governor or at his initiative after obtaining President/ Governor’s approval; f) to ensure that the Appropriation accounts and Finance Accounts of the Union/ states are prepared correctly; g) to prepare accounts of the states and Union Territories; h) to audit and report the account of the stores and stock kept in any office or Department of the Union/ states or Union Territories. Once again, note the emphasis on accounts and the clear absence of even a whisper of policy.

The CAG justifies its current audit practices by relying on an Office Memorandum (OM) dated June 13, 2006 whereby the finance ministry had ostensibly clarified whether a performance audit fell within the scope of the CAG (DPC ) Act. Paragraph 3 of the OM makes it evident that only a performance audit “which is concerned with the audit of economy, efficiency and effectiveness in the receipt and application of pubic funds is deemed within the scope of audit by the Comptroller and Auditor General of India”. Once again, mark the absence of even a convoluted reference to policy.

This notification is itself bad in law and needs to be withdrawn or quashed because the principles of jurisprudence state what cannot be done directly should not be done indirectly. An OM cannot override the explicit mandate of a constitutional provision and the enabling act which nowhere provides for such creative latitude. However, assuming for the sake of argument that the OM is correct, let us turn to the Regulations on Audit and Accounts 2007 made by the CAG itself to give effect to the said act, to understand as to how it interprets a performance audit.

Chapter 7 states performance audit is an independent assessment or examination of the extent to which an organisation, programme or scheme operates economically, efficiently and effectively. It then goes on to define these three Es. Mark the emphasis on organisation, programme or scheme, not policy.

Anybody with even a nodding acquaintance with the English language can discern that the constitutional provisions, parliamentary enactment, rules, regulations and even the OM, read together, do not permit the CAG the kind of role and approach it has arrogated to itself of juxtaposing its personal policy prescriptions against the policy choices made by a democratically elected government and arriving at quixotic estimates of presumptive loss or windfall gain numbers which by themselves are incorrect and open to both dispute and demolition.

The Supreme Court, while quashing the 2G licences on February 2, 2012, had correctly refrained from making any observation on the presumptive loss figure of Rs 1.76 lakh crore and left it to the wisdom of the PAC and JPC to quantify the loss, if any.

Similarly, the Rs 1.86 lakh crore figure that the CAG has computed as gain to private players in the allocation of coal blocks is seriously flawed as it disregards the fundamental reality that these coal blocks were not given to mine coal and sell at elastic prices in the open market but were predicated upon certain tangible national development goals inter alia the generation of 18,300 MW of power, augmenting sponge iron capacity by 35 MPTA and steel capacity by 1,325 MPTA (million tones per annum) respectively, cement capacity by 7 MPTA and the production of 1,70,000 barrels of oil per day by a proprietary technology that converts coal to liquid.

Power tariffs are fixed by statutory regulators in the states after ascertaining input costs; cement and steel prices are subject to market dynamics that enable the consumer to get the most competitive price; and fuel prices, except petrol, are regulated by the government.

It is unfortunate that 56 out of the 57 coal blocks audited by the CAG are non-functional, pending a plethora of clearances mostly by state governments.

The CAG also conveniently decided to overlook the fact that coal is to be extracted over a 30-year period when it decides to hypothetically mine all the coal on a given date in 2012 and sell it all at the Coal India market price on that given date without bothering for the niceties of discounting practices to rationalise the figure at net present value (NPV), which incidentally it chooses to do in its other two reports submitted concurrently.

Incidentally, out of the 57 coal blocks audited, 54 are in non-Congress-ruled states where the state government has the sole responsibility of selecting the developer, recommending his case for a coal block, participating in the proceedings of the screening committee, which should not be confused with an allotment committee, executing the mining leases and giving a bulk of the clearances.

In conclusion, the CAG does not have the constitutional or legal mandate to make its own policy prescriptions and then utilise them to compute notional or even mythical loss or gain. Even when it chooses to do so, it ends up getting it grievously wrong. Headline-hunting is a volatile vocation — perhaps it is time to stop this parody.

The writer is a lawyer and a Congress MP. Views are personal

Courtesy: http://www.indianexpress.com

Read more: http://www.indianexpress.com/news/why-the-cag-is-wrong/994038/0

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