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Mainstream, VOL L, No 39, September 15, 2012

Dragging CAG in Political Crossfire Diminishes Government’s Accountability to Parliament

Monday 17 September 2012, by B P Mathur

The Comptroller and Auditor General’s Report on the Allocation of Coal Blocks has created a countrywide uproar and the working of Parliament has been stalled. Questions are being raised about the mandate of the CAG and whether he has overstepped his jurisdiction. The role of the CAG should be understood in the context of our constitutional framework. The framers of the Indian Constitution recognised his importance as a key instrument in ensuring the accountability of the Executive to Parliament and gave him an exalted position so that he can work without fear or favour. Dr B.R. Ambedkar observed in the 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’. Dr Rajendra Prasad, the first President, had commented that the 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 Parlia-ment’s supremacy over the Executive (Mona-rchy), dating back to the Magna Carta (1215) and Bill of Rights (1688) and measures such as enactment of the Exchequer and Audit Act of 1866, which created an independent office of the CAG, who would audit all government depart-ments and make a report to Parliament to be examined by its Committee of Public Accounts.

The institution of public audit has been evolving all over the world in keeping with the deepening of democracy and need for accountability of the government in view of its increasing role in a complex technocratic world. 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 Common-wealth countries such as Australia, New Zealand and Australia have amended their Audit Acts and made provision similar to that of the UK, and turned the CAG into an officer of Parliament with powers to conduct efficiency audit of the government operations. The US’ Government Accountability Office, since its inception, has been recognised as a legislative branch agency and reports on the wide variety of subjects from federal fiscal issues and debt control to aviation security, gun control and counter-terrorism matters. In continental countries such as France, Germany, Italy, Austria, Belgium there are Audit Courts and act like judicial bodies. The French Cour des Comptes has the power to recover improperly expended public funds or cash deficits from defaulting officers.

The Indian CAG’s role in conducting performance audit should be understood in this background. In the past it has received massive support from Parliament, its Public Accounts Committee and the general public and earned their goodwill. This has emboldened him to bring out perceptive reports on governmental functioning.
The country is facing severe shortage of electricity due to inadequate production of coal and the demand is meant to be met by resorting to heavy imports at huge foreign exchange cost. 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’s Report highlights loopholes in implementation of this policy. Most of the private players who were allotted coal blocks are simply sitting on it, without augmenting production, as they were given mines practically free. The value of coal reserves, which have been allocated to 57 parties, is of the order of Rs 1.86 lakh crores, based on normative valuation of difference between cost of production and sale price. This windfall profit to private players would not have accrued had a system of auction been adopted and that would have brought substantial gain to the public exchequer.

How a private player can secure extra-ordinary benefits becomes evident in the manner in which coal blocks have been allocated for power projects owned by Reliance Power Ltd. Out of four contracts for Ultra Mega Power Projects three have been bagged by RPL including Sasan with 3960 MW capacity each. Two coal mines were allocated for Sasan and a tariff of Rs 1.196 per unit fixed for a 20-year period. Subsequently, a third coal block, Chatrasal, was also allocated to Sasan after de-allocating it from the NTPC, with the provision that surplus coal could be used for its Chitrangi project. As the tariff for these two plants—Chitrangi, MP and UP—has been fixed higher (Rs 2.450 and Rs 3.702), as they have to source coal from the market, they will get the benefit of using nine million tonnes of coal annually from the captive mines of the Sasan plant, which would substantially reduce its cost of production. Due to this beneficent allocation of coal, the electricity when sold will yield financial gain to Reliance to the tune of Rs 29,033 crores, whose present net value is Rs 11,852 crores.

The Coalgate controversy focuses attention on a key policy issue—the role of the private sector in coal exploration and electricity generation. Surely it cannot be the policy of the government to whittle away the role of the public sector Coal India, NTPC etc. and palm off valuable national assets to the private sector at disadvantageous terms. It must be recognised that there is enough space both for the public sector and private sector in view of the country’s vast infrastructural need. But there is a caveat—the private sector should not be allowed to thrive at the cost of the public sector and should play the fair rules of the game. The situation which has emerged today is a typical case of ‘nationalisation of losses and privatisation of profit’, to quote economist J.K. Gailbraith.

The CAG Report would be able to serve its purpose if corrective action is taken and a pragmatic policy evolved to meet the country’s vast infrastructural need for coal and power. The Supreme Audit Institutions are internationally recognised as the guardian of national finance working on behalf of Parliament. An attempt to undermine the institution of the CAG will seriously dilute Parliament’s ability to hold the government of the day to account and grievously damage our fragile democracy.

B.P. Mathur is a former Deputy CAG and the author of the book Government Accountability and Public Audit.

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