Friday, August 17, 2012

More gibberish from the CAG….its not Coalgate but CAGgate

A bright CFO I know often says that the best brains in the country should work for “Operations” (meaning Business), not Finance. This comment of his is made in the context of the smart alecs on Wall Street and Dalal Street who earn millions by “doing nothing” (meaning actual business happens elsewhere). But after seeing the way our CAG works, I think it would be good if some bright finance kids actually joined the Finance. If only they could be made to join the government sector….!

The present CAG has never understood the difference between policy and implementation. A policy is a government’s prerogative; indeed it is policies that give a government its political motif. When a government gives 2G spectrum cheap – and then ensures that the benefits of that cheap spectrum are passed on to the public – that policy is called “pro-people” and the government itself gets called pro-people. When a government charges “market rates” for everything that it owns – and makes the people pay for it – that government is basically “capitalistic”. Neither of these government would be “corrupt” unless it could be proved that someone made money. The loss to the exchequer would not be called a “loss” at all….

Take the latest Coalgate report of the CAG. What’s the main allegation of the CAG? That had auctions been done for the coal blocks, the government would have made Rs 1.86 lacs. Really? And who would have paid for these coal blocks? The blocks were given free to whom? Mostly to power companies who were selected through a process of reverse auctions (the winner is one who bid the lowest for power tariffs). So if Reliance Power got the coal block for free, it factored that into its plans and suitably offered a low rate for power. Had it known that the coal block would have costed Rs xyz crores, the power rate would have been that much higher. Who would have paid? The public at large. And the industry sector. Does the CAG decide whether the public should pay or the government? No. That’s a political decision. The UPA has been pushing for industrialization and everyone knows we need much more power. The gains are in the form of higher power generation, more industrial growth, enhanced employment generation, sharing of national wealth with the people, lower inflation, higher tax collections for the government etc. etc. This was a conscious government policy….not some corrupt act.

What’s the other objection of the CAG? That the PMO thought of coal auctions in 2004 but it took it 7.5 years to do it. So? There are scores of initiatives pending in various stages and it is taking years for those to be implemented; so is all that a scam? The CAG argues that there was extensive dialogue between various government departments, and between politicians and bureaucrats, and between the Central government and various state governments (many BJP ruled), and all this took it that much time. So does this prove this is corruption? Or even mis-governance? Is the coal secretary’s view more important or the minister’s? Does the mere fact that discussions took place prove that there is corruption? There is so much discussion about freeing up diesel and LPG pricing, but there is no action. What if the CAG five years later fuel pricing a scam? Trus me, that number will run into tens of lacs of crores! Does the CAG even understand that we are a democracy and the government faces many tugs and pulls and decision making takes years. Take FDI in aviation and multi-brand retail. Even though this is a decision that the Executive can take, can it in reality? Is the opposition of the states to this policy recorded anywhere that the CAG can review later?

The CAG has to prove if someone made money. Indeed, for corruption to exist, someone has to make money.In the 2G scam, I have still not found out who has made money. Surely not the telcos who the CAG alleges the government favored. Most telcos are in losses or make very small profit margins. Why? Because they passed on all their “gains” to the public in the form of lower pricing. Not any minister – for the scale is so so large that by now the CBI, the SC, the JPC and the CAG itself would have found the money trail. The only trail unearthed so far is some Rs 200 crores (that too its not proven to be scam money) that flowed between DB Realty and Sun TV. Kapil Sibal was dead right when he said there was zero loss to the exchequer. Maybe….there was a presumptive loss or a theoretical loss…..but it was intentionally done…..the government chose to let the so called loss happen. The loss directly benefitted the people.

And what about the “federal” structure of our country? What about the “power of the states” to decide on policies? Why has the CAG not questioned the BJP states that didn’t want coal auctions? Can we please focus the lights on them for just a moment? And what about the period prior to 2004. Did the CAG do any reports on coal for that period? What did it find? Did it miss detecting the lack of auctions then? Did it mention that in its report then? No….for the present CAG is a political person. The present CAG has discredited the Constitutional office he holds; one by his complete lack of understanding of business and two, by being overtly political. A rumor floats around this particular gentleman’s political future – but let me not get into that.

Auditors often tend to be “clerical” and that is why the PAC whets the auditor’s report. This is commonplace in the corporate sector. The audit committee filters out clerical observations. Like a friend pointed out (thx Vishal!): there are 50 overs x 6 balls per over = 300 balls. Our batsmen can hit a six off every ball….ideally our team can score 1800 runs. If the team scores 350, they are causing a potential loss of 1550 runs per match to our nation. So our captains should be hung for corruption! This is typically how auditors think….and our CAG is no better!

There is one other observation of the CAG that I want to point out. When long term contracts are given out, it is impossible to spell out every potential scenario. No auction envisages whether pricing will have to be increased or not. All policies however provide for a mechanism to control malpractices. In the case of DIAL’s airport development charge as well, the pricing was approved by the regulatory bodies. All operators who bid knew this to be the case. They operate other government contracts where they too get price increases when required. This is not corruption at all.

Policies evolve with time and they take time to get implemented. That’s the bane of a democracy. Had it been China, every decision would be implemented in a jiffy. Let’s make up our mind – do we want to be a China and enjoy the fruits of fast growth (though at a huge compromise with our freedom) or do we want to remain a slumbering democracy where every decision is questioned – often by those who don’t even have the skills to do so – but where our freedom is protected?

As far as the BJP is concerned, it’s reduced itself to a bundle of whining pups who are now so hungry for power that they don’t even mind saying so openly (everyone noticed their overt Ramdev act). As a TV channel pointed out last night, the BJP has demanded the PM’s resignation 30 times! We know how opportunistic the BJP was when it chose to sign the Sense of the House resolution agreeing to set up Lok Ayuktas along with the Lokpal; but then quietly backed out after giving Anna its word. We know how they demand federalism when it comes to NCTC, but shun their responsibility when their states opposed coal auctions. We know they have nothing to say for their six years of rule when it comes to black money or 2G spectrum or coal block auctions…..but they turn icons of virtue when they are in opposition… is the BJP that needs to introspect….not the PM.

The problem with this government is that it is stuck between wanting to be a welfare government and a capitalistic one. It should have stuck to its guns on 2G and said it would continue to give spectrum cheap. It should have stuck to its decision to give coal blocks for power units free. But in both cases, it changed its policy. It has abandoned its pro-people image and become capitalistic – milking the people dry. The only accusation I have against the present government is that if it was a political strategy to price 2G and coal cheap/free, then why did it change? Is it an evolving ideology? If so, it should state it upfront. If it is under the pressure to manage the fiscal deficit, it should state that up front too. The problem of this government is one of communication. It fails to communicate its intentions; leading observers to think there “must be a scam”.

The real truth is that the CAG itself needs to be audited. The CAG has today become a highly political and unbelievably intellectually deficient. The present incumbent is responsible for this. What the CAG knows is that he cannot be impeached. See the flip side of having “independent” authorities not responsible to anyone? Or rather responsible to their covert political masters?????


  1. hi,

    chetan bhagat is the new zionist stooge.

    punch into google search WALMART IS NOT GOOD FOR INDIA- VADAKAYIL.

    capt ajit vadakayil

  2. Very cogently argued - I love your analogy of the 300 balls per match.

  3. Your views are most refreshing and reassuring about the state of affairs in our country. I agree with all that you have said.

    In addition, I would like to know: Have the power companies hoarded coal? Have they made windfall profits? Can you please explain.

  4. You have said,- "The CAG has to prove if someone made money. Indeed, for corruption to exist, someone has to make money.In the 2G scam, I have still not found out who has made money." It is amazing (and amusing too) to see such comments made in this blog. If you close your eyes and don't want to see 'things', even god cannot help!