In response to my previous post on the CAG reports (particularly on the Delhi International Airport), good friend Ajit Ranade forwarded me links to his article in Pune Mirror and the article by Swaminathan Aiyar on the CAG report. For an ordinary reader, Ajit comes across as somewhat too harsh on the CAG, given the analogy he uses: running behind a bus. vs. running behind a taxi.
The second one – by Aiyar – can be disposed off relatively easily. The CAG, unlike the Supreme Court, is not making policy. It is only coming out with estimates of accounting losses incurred by the exchequer on account of the decisions that the Government took. In the process, it also highlights the process lacunae and deficiencies that played a role in arriving at those decisions. The CAG is not making policy. For example, in the case of the Delhi Airport, it concedes, and correctly, that the Government has the prerogative to use the Public-Private Partnership route to build public assets and infrastructure.
I am pleased that Mr. Aiyar concludes strongly and correctly:
Despite excesses, an activist CAG represents a net gain for democracy. Along with the Supreme Court, the CAG has ensured that most natural resources will be auctioned in future. That is a huge gain in fairness.
After the Election Commission and Supreme Court, the CAG has become the third institution revolting against a corrupt, callous state. We need such revolts.
Now, let us take up Ajit Ranade’s piece:
It is a valid conceptual point that what is deemed as a loss to the exchequer could have been a deliberate policy thrust. We could accept that argument had the decision been taken after due deliberation.
When public goods are given away to the private sector, one starts off with ripe conditions for process-vitiation. One is trying to remove a silk saree that has fallen on thorns. Hence, the government has to be very careful and doubly sensitive to following due processes without bias or favour.
If the abandonment of the auction process was a deliberate policy thrust on the part of the government, then the following process methods should have been in place, ex-ante:
(1) What the CAG audit has come out with ex-post, should have been done ex-ante by the government. Being armed with these estimates would give the government a clear idea of the range of the amounts of public money that it is ‘giving away’ as a deliberate national policy. It would negotiate better and effectively.
It would then be able to set and negotiate the conditions for such easy ‘giving away’ of public goods in terms of deliverables – from a public policy and welfare perspective – by the private sector.
(2) Also, if, in the process of giving up such exchequer gains for ‘national policy thrust and goals’, the private sector is enabled to generate super-normal profit (thresholds can be arrived at, even if the process is subjective), then the government should reserve the right to impose one-off or temporary super-profit taxes. This should be in the concession agreement.
(3) Due processes should be scrupulously followed since the exercise is fraught with dangers of accusations of favouritism, even before it starts off. One does not allocate spectrum to inexperienced and totally strange outfits. In the name of spreading ‘primary education’, that amounts to handing over the children to child abusers. Harsh analogy but please think about it.
(4) The fourth and the last point is related to (3) but here, I would like to go simply beyond giving away public goods (e.g, spectrum) through a due process – the point I make in (3) above. The bidding process should include criteria that would give weightage to ‘responsible’ private sector players – that is, those players with a track record of fulfilling their statutory obligations to the government and who have demonstrated that and go beyond that too.
(5) Even if the policy were deliberate in the interest of public welfare, how does the government decide on it? What is the amount of public loss that the government causes by giving up on revenues when such revenues can reduce fiscal deficit, restore confidence in government, in public finances, lower inflation and interest rates credibly and thus kickstart an investment cycle, generating business confidence and employment?
How does the government trade off this virtuous circle (sketched above) with its decision to forego revenues consciously? Can a competent and ethical government take better care of the negative consequences on productivity and costs by auctioning off public resources (vs. giving them away cheaply or freely) with revenues thus earned?
(6) I am not suggesting that these are easy to formulate and implement. But, careful and deliberate planning and consideration of wider ramifications are called for before such decisions (not following the auction process) are taken. In fact, the CAG reports should focus minds on the availability of necessary competence in the bureaucracy to advise politicians correctly.
Therefore, it is unpersuasive, at least to me, that a decision conceived and executed in bad faith can be explained away, ex-post, as a conscious national policy choice.
An auditor is thus fully entitled and in fact, that is his job, to focus on accounting losses. It is up to the government to have anticipated them and consciously trade them off for well articulated and carefully chosen public policy goals.
If the government did not do so in the past, then the CAG reports lend urgency to the adoption of such a rigorous process in future.
It is the duty of a watchdog to bark. Sometimes, the barking turns out to be a false alarm. But, many a time, the dog gets it right.
By dismissing the reports – focusing on losses that the auditor did not focus on (in the DIAL case, specifically), the media and other commentators create the serious risk that due care, deliberation and conscious decision-making remain elusive in Indian public policy space.