Don’t undermine CAG’s role

The Comptroller and Auditor General of India (CAG), Vinod Rai, delivered a talk on ‘Good Government and Public Accountability’ in Chennai recently. This topic is most relevant now. Ethical values and moral standards are now at their lowest ebb in India. The role of the CAG as an instrument of government accountability deserves attention.

His recent audit reports, starting with irregularities in the spectrum 2G auction, have contributed to public awareness of the existence of government audit. It is necessary bring to public attention a few basic features of the important functions of the CAG. At the outset, the negative image of the Auditor General as a mere fault-finder needs to be dispelled. As head of the supreme audit institution under the Constitution of India, he is the instrument to ensure accountability of central government to Parliament and State governments to State legislatures. This gives him a complex and comprehensive mandate of reporting on how government raises money from the public and how it is spent for the benefit of the public.

The government budget of receipts and expenditure has undergone a mind-boggling transformation since Independence to reflect the change in government’s role from a law and order state to a welfare state.

The Central government budget of less than Rs 250 crore in 1950 has shot up to Rs 14.9 lakh crore in 2012-13. The large number of diverse schemes and projects is an additional dimension to assessing accountability. Regularity and propriety in terms of compliance with rules and procedure is a necessary focus for government audit, but not sufficient. The efficiency and effectiveness in revenue mobilisation and spending public money needs to come under audit purview. The CAG has attuned his work to meet this challenging task.

He continues to do the audit scrupulously, the 2G report being a case in point. But he has also moved beyond this to do a performance audit of schemes and projects.

Therefore, he is not a mere fault-finder. And, the criticism that he encroaches on policy and paralyses action is misinformed. What is required is transparency on record of the reasons for action. A few observations and suggestions on his wider role are attempted below.

BUDGETARY AUDIT

A matter of serious concern is fiscal (mis) management. The Fiscal Responsibility and Budget Management Act, 2003, lays down limits to borrowing by government to finance expenditure. The annual budget has to be accompanied by a Medium Term Fiscal Plan projecting receipts, expenditure and deficits in the two years following the Budget year. Ten years after the FRBM Act, the government is yet to meet targets.

Lack of disaggregated data on receipts and expenditure and basic assumptions is a major problem.

The attention is on quantitative targets and not on how the deficit is to be reduced by reforms in revenue and expenditure management. Buoyancy in revenue and revenue from disinvestment and spectrum auctions are used to reduce deficits, instead of bringing about basic revenue and expenditure reforms.

The periodic fiscal “road maps” are no better. Lack of transparency in accounts, for example, subsidies due to cash accounting instead of accrual accounting, is a contributing factor.

Expressing the deficit target as a percentage of GDP, rather than in rupee amounts, needs a second look. This is especially because GDP compilation is a difficult statistical exercise, involving varied data.

Implementation of the FRBM Act deserves CAG scrutiny. This will be timely as good fiscal management is needed to tackle the twin problem of low growth and high inflation, which cannot be left as the sole responsibility of the Reserve Bank.

Another area with scope for more CAG audit is the implementation of output and outcome budgeting.

This was introduced in 2005-06 to measure the development outcomes of all major programmes, to ensure that programmes and schemes are not allowed to continue from one Plan period to another without an independent and in-depth evaluation. Government audit can examine the actual “outcome” of this output-outcome budgeting.

On the revenue front, a huge amount is revenue is forgone every year by way of tax concessions (more than Rs 5 lakh crore in 2011-12, according to the 2012-13 Budget).

This does not even figure as an item in the revenue or expenditure side of the annual budget. A special audit may lead to more transparency and Parliamentary control.

AUDITING OF PPPs

The CAG is a Constitutional authority. His duties and powers are laid down in the Act passed by Parliament in 1971. The Life Insurance Corporation of India and public sector banks are outside his purview.

This anachronism needs to be removed. (Non-performing assets, or NPAs, in public sector banks are higher than in private banks, according to recent information).

Other areas meriting examination are public-private partnerships and direct transfer of government funds to local autonomous bodies.

The links in the government fiscal management cycle are planning, budgeting, accounting and audit. Though audit comes last, it is a vital link, as it can trigger reform in the other links.

The Constitution and Parliament ensure independent functioning of the CAG. It is our fervent hope that this vital institution is not devalued, like so many others.

(The author, who retired from the Indian Audit and Accounts Service, was IMF Budget Adviser. The views are personal.)

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