CAG in the wheel

The Supreme Court’s ruling that the Comptroller and Auditor General of India (CAG) is empowered to audit the accounts of private telecom companies expands the power of the public auditor well beyond that originally envisaged. Although the order is limited to the telecom sector, it will dampen already weak investor sentiment, besides raising serious doubts over the future of public-private partnerships (PPP). In upholding an earlier Delhi High Court judgment, the Supreme Court has interpreted Section 16 of the CAG Act extremely liberally — to mean that the national auditor has the “duty” to audit “all receipts which are payable into the Consolidated Fund of India” and “to make for this purpose such examination of the accounts as he thinks fit”. This would include revenues through licence fees and radio spectrum charges from telecom service providers. So even though these operators are private players, the public through Parliament has every right to ascertain whether the revenues due have been fully realised without any “unlawful loss” to the exchequer.

The judgment runs the risk of opening up a Pandora’s Box as the sheer logic of it implies that CAG audits should be mandatory in all contracts where private entities enter into revenue-sharing arrangements with the Centre. These could be in exchange for the rights obtained and for such activities as developing hydrocarbon blocks, highways, airports and ports. There are many such projects in PPP mode that both the Centre and State Governments are actively promoting — and for good reason. Governments today have neither the cash nor the managerial resources to undertake massive infrastructure investments. Bidding out projects to private parties and entering into income/profit-sharing agreements is the only way to go. But this system cannot work by treating private concessionaires or licencees as public sector undertakings and making them subject to compulsory CAG audit, even for the “limited purpose” of securing the state’s revenue interests.

It hardly needs reiteration that the Centre must not be denied its legitimate share of revenues from licensed service providers or PPP projects. But this is something that should be addressed in the licence agreements themselves. The existing agreements with telecom firms, in fact, provide for special audits in the event the Centre feels that the statements and accounts submitted by the licencees are inaccurate or misleading, even when duly certified by its auditors. The special auditors appointed have the same powers and access to the company’s books as its auditors. Moreover, such audits can even be conducted through the CAG. A basic mistrust in the private sector arises when CAG audits are made mandatory, as they are for government companies. There are reasons to believe, as the Supreme Court obviously does, that a venal executive worked hand in glove with private interests to rob the exchequer in some spectrum auctions. But the remedy prescribed for this is wrong.

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