PAC suggestion is a bad one
Given the delays and controversies surrounding the reports of the Comptroller and Auditor General (CAG) of India, the Public Accounts Committees (PAC) of Parliament and the state legislatures, which examine these reports, are right in suggesting that the auditor’s work should be more current and their examination should also be quick so that action on their recommendations can be taken as fast as possible. After a two-day meeting of the PACs, a number of measures have been suggested to make this happen, including amending the CAG Act to make a provision for consultation with the committee in the appointment of the CAG and making the CAG accountable to Parliament, like it is in the UK and Australia. The PACs also want their suggestions to be a binding on the government as against the existing practice under which it is up to the government to accept or reject them.
Since several systemic changes—cancellation of old coal blocks and compulsory auctioning of them—have resulted from CAG reports, there is little doubt the process has worked well. Whether it was 2G, or Coalgate, or the Commonwealth Games, CAG reports have helped uncover huge corruption in existing processes. To that extent, anything which curtails the autonomy of the CAG has to be avoided. At the same time, it is equally true that the report-making process is extremely slow and time-consuming—and, by and large, little action is taken on most CAG reports. So, anything that expedites this process and ensures the government takes corrective steps has to be welcomed.
However, the PACs’ view that the CAG should also start examining public-private partnership (PPP) projects is a bad idea. PPPs were started to replace public sector projects that suffered from both a lack of finance as well as slow decision-making—partly a result, for instance, of the need to float tenders for everything and to accept the lowest bidder. Several top PSUs, such as BSNL for instance, have seen their market share dip as losing bidders have approached the courts to get big tenders for installing new mobile phone capacity cancelled. If the same rules are now to be applied to PPP projects—tendering for each component of a project and using the L1 concept—they too will start slowing down. The PAC, of course, is right in arguing that public money is being spent, and so that needs to be safeguarded. But the way to do that is not to get the CAG to audit these projects, it is to ensure the contracting is done well, to avoid any scope for corruption. So, for instance, had the definition of what was ‘revenue’ been clearly defined, the problems that arose in the case of the Delhi airport privatisation would never have arisen since all the deposits the franchisee was taking would also have to be shared with the government. In the case of the oil sector, one of the reasons why the government is moving to revenue-sharing as opposed to the current cost-recovery model is precisely to avoid the CAG second-guessing Reliance—or any other contractor—on whether costs are gold-plated. In the case of the PPP projects being finalised for diesel and electric locomotives, since bidding is being done, the issue of gold-plating does not arise. In other cases, such as electric utilities, it is better that the regulator look at costs by bench-marking them.