Saturday, August 6, 2011

Message from the CAG – Don’t be a dreamer. Be a babu…..

Anyone who has dealt with auditors knows that an auditor, by nature, will question anything that is out of the ordinary. And by definition, any plan that is visionary or involves big thinking wil lnecessarily be out of the ordinary. Conceptually therefore, any big thinking will incur the wrath of the auditor. There is an inherent clash between an auditor whose raison d’etre it is to keep a check… hold back….and the dreamer who pushes at the boundary all the time. Neither is wrong really. In fact, the fine balance between the two is critical for maximum gains to be derived. Any disruption in this balance can either give rise to over-caution (small thinking…..sticking to the tried and tested) or profligacy (total disregard for rules and processes). Unfortunately, that’s exactly what appears to be happening in India of late.

Take some of the recent observations of the CAG. In the CWG report, the CAG has accused the Delhi government of spending nearly Rs 100 crores on Delhi’s beautification. The accusation implies that this money should not have been spent and it should instead have been used in other, better ways – for eg. for the poor of the country. No one can deny that this is a correct observation. Every single spend in the country should indeed be on the poor. Please note that there is no hint of any corruption in this observation. The CAG has merely pointed out that this is a “wastage of public funds”. If one were to go by the CAG’s advice (assuming the CAG had given it before the spends were incurred), then Delhi may have looked like a third world city that it probably is…..with poor roods, polluted air, ill equipped and dirty stadia, traffic-laden roads……and this would be acceptable to the CAG. Begs the question: why did the CAG not question the decision to host the games in the first place? Should India really have hosted the games at all….knowing fully well that doing so would lead to many costs that could ideally be spent elsewhere (The games are not profitable). Yet, the CAG has chosen not to question this decision. I don’t want to question the obvious political criticism here: Is the CAG playing favorites between the NDA and the UPA? Thus, one must conclude that as per the CAG, the CWG should have been organized, but monies should not have been spent on creating a good image for India. If participants carried back images of a third world country, then that would be OK…..after all, that would be a true reflection of India.

Take the 2G spectrum issue. The government decides that it wants to bring about a telecom revolution in the country. It offers 2G spectrum to private telcos, but soon realizes that there are flaws in its initial policy. It thus changes the policy and brings in the revenue sharing regime (the NDA government), as a result of which the country “loses” many thousands of crores. But thanks to this policy, the telecom revolution begins. The government then decides that it wants to keep telecom pricing low, so that the revolution spreads; hence it decides not to auction spectrum, but to give it “free” based on the need for it (based on subscriber numbers)(NDA followed by UPA). It makes sure that the consumer is protected at all times. So it makes sure that incoming calls are made free. Etc etc. Government policy makes call rates fall from Rs 16.8 per minute to 1 paisa per minute. Who benefits? The public. Do the telcos benefit? No. Most of them are still losing money. Does the government benefit? Yes, because it achieves its objective of a telecom revolution. Hundreds of millions of people are empowered by the availability of a telephone connection. No longer is an “address” needed to start a business. A telephone connection is adequate. The public at large benefits because common services like those provided by a plumber, an electrician, a carpenter, a vegetable vendor, a milk supplier, a newspaper distributor…..are now only a phone call away. The telecom revolution is an example of bold thinking by successive governments. Of planning big. Of taking a giant leap into the future. But the CAG doesn’t like this. This is too “out of the box” for its comfort. The single minded focus of the CAG is to count the beans. It opines that giving away spectrum cheap or free is a loss to the government. Now the question is: who will decide whether this is a loss to the country or a gain? Should the CAG’s view be final? The Constitution wants the policy makers to decide and hence the provision for the CAG report to go to the PAC. But the CAG does not like this and has become a lot more ambitious. It violates protocol and goes straight to the media. How can Parliament – the policy makers – decide whether the country has lost or gained? Who are these corrupt Parliamentarians anyway? The CAG is the cleanest, and clearest-headed body in the country. Its report should be taken as final. Sounds similar to Anna’s approach to the Lokpal? My version of the bill or nothing at all? Here the CAG is saying: my report or nothing at all.

Can the CAG decide on policy at all? Take our policy of providing subsidies to poor people on diesel, kerosene and LPG. Why is the CAG not putting out a report on this? Isn’t this a loss to the country as well? What about India’s space programme? Why should India be sending satellites into the sky when the monies could be diverted to poverty alleviation programs? After all, so many millions of poor still survive on less than 1$ a day? What about building spanking new airports? Surely, the country should first focus on getting better railways stations which cater to the poor before getting new airports? Isn’t this a colossal waste of money? What about the brain drain from the IITs? Surely that’s a waste of government funding? Imagine, the government subsidizes the tuition fees of the students and they go abroad to work? And the government does nothing to stop this? Why should the IIMs set up international campuses? There are so many students in India wanting an MBA education who don’t get it – surely the focus of the IIMs should be on this rather than spreading their wings outward? Surely, the CAG report on this should have “indicted” the government. Maybe even led to its fall?

Some of the examples above may sound far fetched and unfair. The argument stretched to the hilt. But I have done that intentionally to prove a point. An auditor has no role to play when it comes to policy matters. That’s for others to decide. In a corporate set-up, the Board decides how big a leap the company should take. Not the auditor. In a country, the Executive decides what bold steps to take. Not the CAG. But for this to be understood, a country needs to have a huge amount of maturity. If that maturity is lacking, the auditor’s comments will be misconstrued indictments of the government. And all big thinking will stop. But if the country is mature, then the comments will be taken as “feedback for improvement”. By common sense, an auditor should refrain from sensationalism, especially in a country like ours, where immaturity abounds everywhere – in the Parliament, in media, and most of all, in the citizenry. No way can an auditor hold a press conference. That’s insane. In the corporate world, if the company’s auditors did that, they would be sacked.  They go to the audit committee. The Audit Committee of the Board brings in the requisite maturity. There are so many times when the Board allows – even appreciates – higher-than-necessary spending by management if it finds the reasons to be justified. The Board never comes in the way of management’s big thinking… fact, it demands more of it. It doesn’t ignore the audit report; in fact if there are process violations, frauds and corruption of any sort, the Board may even sack the management. This way the Board ensures that the fine balance between an auditor and the management is maintained.

The real truth is that in India, there is no one to maintain this balance. The maturity is totally missing. CAG reports are politically abused…..opposition parties (whichever the party) like to take the CAG’s adverse comments as the only truth. The PAC gets the report after the media gets it. The Executive is hanged before it can even offer its points of view. The clear message that this sends is: Stop thinking big. Follow the rules. Be a babu. Tow the line. Don’t think out of the box. Dream small……Who loses? The country of course…..but who cares in today’s politically surcharged environment….

1 comment:

  1. " An auditor has no role to play when it comes to policy matters. That’s for others to decide." is the crux. An auditor's role is not to question a decision. The auditor's responsibility is to validate if the decision is within defined constraints --- he has to validate if rules and policies are followed, not to question the rules and policies.