THE HINDU

AUGUST 20., 2012

A watchdog that bites

One of the first principles that students of auditing are taught is that auditors are watchdogs and not bloodhounds. The Manmohan Singh government would have us believe, in the wake of the Comptroller and Auditor General of Indias reports first in the 2G case and now in the coal mining issue, that this basic principle is being violated by the incumbent CAG. Why should the CAG comment on the adequacy or otherwise of government processes, Ministers ask. Isnt this overreach? The reason these concerns are misplaced is that unlike private companies that have internal auditors who keep an eye on systems and processes, the government has none. And given the blatant rent-seeking behaviour of politicians who are de facto custodians of the countrys natural resources, be it spectrum or coal, the CAG has the responsibility of playing whistle-blower. Yes, the mind-blowing numbers it has come up with in the 2G case and now in the coal mine allocation issue as loss suffered by the exchequer are only presumptive. But the reserve price the Union Cabinet itself fixed recently for the sale of spectrum has validated the logic underlying the CAGs numbers. Far from being pilloried, the CAGs auditors deserve to be congratulated for their professionalism and integrity. It is clear from the reports that we need a fair and objective system for allocation of scarce natural resources that will also generate optimal value for the exchequer. The auction method, already mandated by the Supreme Court in its 2G judgment for allocation, has also been incorporated into the Mines and Minerals (Development and Regulation) Act. This is a fair method provided the auction process is well designed and transparent. There are those, including some policymakers, who objected to the method when the Supreme Court recommended it. But the fact is that when a valuable resource is scarce, those in authority invariably attempt to extract a rent from it by virtue of their control over its allocation. Auctions are the best way to neutralise this danger. The three CAG reports that were tabled in the Rajya Sabha on Friday are bound to raise a storm especially because the Coal Ministry was under the Prime Ministers direct control when some of the allocations were made. A large part of the sting may have been taken out given that the coal findings were leaked a few months ago but the fact is that the report ensures corruption will continue to remain at the top of political discourse in the weeks and months ahead. As their skills are put to the test inside and outside Parliament, the governments crisis managers should resist the temptation to shoot the watchdog. Any attempt to do so will only backfire on them.