CAG Vinod Rai .....Media takes stock of his tenure

The Vinod Rai impact: unCAGed

TK Arun  
Tuesday May 21, 2013, 10:50 AM

Was a tender issued to identify the builder who would offer the lowest cost? Before entrusting the construction to a bunch of monkeys, was an attempt made to verify simian competence to build a bridge, particularly one across the sea? Was the cost of potential environmental damage factored in? Ram was lucky he did not have to face an auditor on his return from Lanka. 

But one expects auditors to raise such questions. Theirs not to see the context and the whole picture; theirs only to pick the nits. It is up to those who evaluate an audit report to build the context around it and reach sensible conclusions. 

At times, the questions bring up valid points normally not noticed. More often, you down your cup of tea and move on. In the case of reports from the government's auditor, theComptroller and Auditor General (CAG), the job of making sense of the audit report is led by Parliament's Public Accounts Committee (PAC), always headed by a senior Opposition leader. 

Focused on Sleaze but...

Vinod Rai's achievement as the CAG has been to liberate the auditor from its erstwhile status as an adjunct to the PAC and spare its reports the pain of evaluation with reference to context, thereby elevating the auditor to a stand-alone oracle of financial propriety in the government. 

This has had positive and negative consequences. It gave sharp focus to popular anger against corruption and Rai can legitimately be proud of this. But, by producing wildly exaggerated numbers of notional loss, by presuming to judge policy, which he is not equipped to, either by his office or by technical competence, and by stepping outside his constitutional mandate, he has produced chaos and confusion, leading to policy paralysis that has aborted a few hundred billion dollars worth of GDP. 


The report on Air India is the best example of incompetence. It faulted the government for allocation of bilateral rights to foreign airlines before Air India had finished augmenting its fleet. The criticism is sound, if the government were bothered only about Air India's finances. 

But globalising India's fast growth over 2003-08 depended on foreign markets,foreign capital, foreign acquisitions, foreign experts, on-site delivery of IT services, etc, all of which called for lots of foreign travel. The CAG was effectively arguing for holding India's growth hostage to improving the management of one of the world's worst-run airlines.

Let's come to the 2G report. Even today, the CAG says he only offered a range of loss figures, did not insist on the highest, Rs 1,76,000 crore, and that the CBI put the loss at Rs 30,000 crore in its first information report. But he conveniently forgets to add that the charge sheet formally framed against the 2G accused omits any charge of causing loss to the exchequer. For the very good reason that any such estimate of loss would be erroneous.

Making the wholly flawed auction of 3G spectrum in 2010 the basis for estimating presumptive loss was silly. Putting only a tiny sliver of spectrum on the block with no forward visibility on future availability was designed to jack up the bids. 

The government did get a lot of money upfront, but at a huge cost. The telecom companies were saddled with huge debt, denying those loanable resources to other sectors of the economy, only to transfer them to the government via the telcos. This debt pile-up built upward pressure on tariffs, and has slowed down investment in the new, high-speed data networks that India desperately needs. 

Hype and Holes
A more fundamental flaw was that the CAG did not take into account the spurt in government revenues that accrued from other sectors as a result of increase in productivity and faster growth made possible by fast telecom spread on the back of cheap spectrum under the first-come-first-served policy. 

Such additional tax collections could be close to Rs 1,00,000 crore in just one year. The huge positive externalities of fast telecom spread make a strong case for allocating spectrum on criteria other than upfront spectrum charges. South Koreaand Japan have achieved near-total coverage of 3G services through such policies. 

But, of course, this does not mean that Raja did not manipulate the priority list, favouring his cronies. The 2G scam is about a battle among would-be operators, not loss to the exchequer.

 The coal finding is smarter. It posits undue benefit to some companies, not huge loss to the exchequer. But any allocation of captive mines transfers undue benefit. The problem is captive mining, not its method of allocation. The point is to end state monopoly in coal and open up mining to merchant miners.

By insisting that auctions were appropriate when state governments opposed it and the mining law had to be amended to give auctions a sound legal footing, the CAG went far beyond its legitimate mandate. 

In sum, Vinod Rai achieved his goal of focusing on corruption — but by making wild exaggerations, killing the institutional integrity of the CAG and triggering policy paralysis that shaved a few percentage points of growth for three consecutive years off a $2-trillion economy.
Comments(82)Rated 2.10/5 (111 Votes)

May 22,2013 at 11:04 PM IST
Sandwiched between a hostile community of beneficiaries of largesse from government via different routes and a government benevolent in showering praises on CAG only when it has to defend itself from opposition attack, Vinod Rai had to assert his stance defending public interest in public on an ongoing basis, which is a tough task for any civil servant in India. If the institution of CAG and the individual have been able to carry on unperturbed, proactive support from media and organisations like Moneylife Foundation did help the process.
The efforts taken by Vinod Rai and his predecessors to sharpen the available tools by infusing expertise into the organisation and by training and educating cadres down below have brought professionalism in the performance of audit function and improved the confidence level of staff. If similar initiatives had come from his counterparts heading several government departments and public sector or statutory organizations, the agony the UPA II government is now subject to would have been much less.


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