Monday, August 20, 2012

CAG gets it all wrong… panned across the board….

The long weekend has provided time for analysis and the one conclusion coming up repeatedly is what has been obvious to many for long. The CAG has got it all wrong. The CAG has been commenting on policy matters…..sensationalizing its reports and politicizing its office in the process. The CAG did it first with the 2G “scam” and it has done it now again with Coal and power.

Sample a few stories in the papers. In a remarkably well written ET story (and blogpost on the same subject), TK Arun argues for the scrapping of the Coal Mines Nationalisation Act (CMNA). It is this act that gives a monopoly to Coal India Limited (CIL) and starts off the entire process of inefficiency of mining the mineral and its utilization by the end users. Arguing against auctions of captive mines being the panacea, he writes “The market for coal is linked to the markets for the end-produce of coal. While steel and cement are reasonably stable, competitive markets, the market for power is a maze of uncertainty predicated on regulatory whim. This vitiates reasonable bidding in any manner that would make upfront payments to the government a bid parameter. If there is no upfront payment, there is no revenue to the government and no revenue to be lost on account of not having conducted auctions.” He ends by accurately summarizing the report “The CAG variety of criticism is unmitigated garbage.” Very similar to my own title a couple of days back “More gibberish from the CAG….its not Coalgate but CAGgate”.

The article by Arun argues rightly about the policy pursued by the GOI since 1973 when the CMNA was enacted. It argues strongly why CMNA breeds inefficiency and why it must be scrapped. This is the kind of informed debate we must have in the country. In fact, the CAG should have brought this up in its report. It should have separated “policy losses” from “actual cases of corruption”. No one is saying that there isn’t corruption in coal block allocation, but to call it a Rs 1.86 lac crore corruption case is way out of line with the reality. Just like the Rs 1.75 lac crores on 2G was way out of line. Newspaper reports also indicate that the CBI will file cases against cases of actual corruption and that’s how it should be.

The TOI in its editorial “Go Beyond CAG: Shout less about notional losses, do more on genuine coal sector reform” writes “if CAG – whose job is to keep accounts – habitually hypothesises about presumptive revenue loss owing ostensibly to absence of this or that policy in the past, where will it end?” It adds “Its coal audit claims private firms could make a killing of Rs 1.86 lakh crore from coal blocks allocated non-transparently. That, it says, means a dent in public coffers. As with telecom, here’s another case of breast-beating over a ‘loss’ to the exchequer that’s notional rather than real.” Arguing against politicizing the matter, the editorial notes “But since it (the committee system of allocations) predated the UPA, politicising the matter won’t help.” And “no ruling dispensation has done what’s really required: get government out of the business of running coal mines by dismantling nationalised coal mining.”

Yet another newspaper argued in defence of the PM saying that he was the one who started the process of auctioning coal blocks. Before he did this, coal blocks had always been allocated. So rather than blame him for the delay in implementing auctions, it would be better to acknowledge his role in starting off the process.

The editorials in the Economic Times of today on Coal and DIAL also summarize the problems with the CAG: “A Public Disservic: CAG reports, instead of shedding light, increasingly spread confusion” and “Plane Wrong: The CAG’s report on DIAL is ill-informed and full of holes”

The BJP is of course clamoring for the PM’s resignation in spite of the above stated logic. Like some news channel brought out, the BJP has demanded the PM’s resignation on some 30 previous occasions… no one gives their demand a second thought. But what could be very embarrassing for the BJP is that its own state governments were opposing coal auctions right since 2004 when the PM first mooted the idea. Why? By opposing auctions, wasn’t the BJP making its position on the subject clear? Wasn’t it the beneficiary of the alleged corruption as well? Is this why the BJP did not even think about coal auctions during its six years of rule? The BJP is on very slippery wicket here…..and I have a feeling that it will be forced to taper off its criticism of the UPA on this report.

Unfortunately for the BJP, its blued eyed boys of yesterday, Arvind Kejriwal and Prashant Bhushan have started freely ranting against the party. What’s happened here is the subject matter of another post. But here’s what the duo stated as mentioned in the Indian Express of 18th August “All parties together in graft: Arvind Kejriwal”: It was not just the Coal Ministry that was opposed to auction of coal blocks, all state governments opposed it, including BJP-ruled states and Left ruled West Bengal because all of them wanted a share of the pie”. So is BJP really in a position to capitalize on this CAG report?

The CAG has become a politicized office. So much so that Tavleen Singh had to caption her piece in the Indian Express of 19th August “Can anyone challenge CAG?” – a title very similar in sentiment to my own title on September 10, 2011: Who will audit the auditor? She quotes Surjit Bhalla from an article he wrote in the same paper (Where Donkeys fly – March 24, 2012) where he asserts that “it was the economic illiteracy of India that allows Mr Rai’s bizarre mathematics to go unchallenged”. The question to be asked is: Is the CAG doing the job that it is intended to do? Clearly, it’s not a question of the capability of Mr. Vinod Rai. A friend pointed out that Mr. Rai is a graduate of the Delhi School of Economics and Harvard. So his credentials are above board. If its not capability, what is it that ails Mr. Rai’s understanding and appreciation of the facts? In the past we’ve seen how the CAG had to beat a hasty retreat (without apologizing) on its Rs 2 lac S-band spectrum scam. I guess the CAG realized the mistake it had made by equating S-band spectrum with 3G spectrum. How can such fundamental mistakes be condoned? How can it be explained if not by the possibility that Mr. Rai has carved out a political future for himself?

The real truth is that just like we have dirty cops, it is possible that we have dirty auditors. The CAG has a lot to explain. The BJP has hardly anything to go by – at least as far as Coal is concerned. If it doesn’t handle it properly, both the CAG and the BJP will find their faced smeared by coal…..

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