Private sector needs CAG-type watchdog

Today’s economic world has become far more complex with the distinction between private and public sector getting blurred.

There are a range of investors, from public institutions to sovereign wealth funds, in a large private sector company. Then there is also a growing need for public-private partnerships (PPPs) in infrastructure and socially relevant sectors. This transformation, as well as growing incidence of corruption and misuse of public money, calls for introducing relevant changes in the laws and regulations governing the industrial sector.

Since the public sector is already subject to public accountability and scrutiny, the same needs to be extended to the private sector. Besides promoting good governance ethics, public accountability would also ensure judicious use of public funds, thus ushering in efficiency and higher growth.

MORE OVERSIGHT

Good corporate governance ethics, including transparency, credibility and due diligence, are more important today than ever before. Large sums of public money have been invested in corporate houses through stock markets. The apprehension of such vast sums of public money being used for extravagant and conspicuous expenditures by the owners of private corporate houses is no longer unfounded.

Also, it has been observed that corruption is not a function of ownership. Rather, it is common to both public and private sectors. This makes a case for introducing greater accountability and strong checks and balances. Since the public sector is subject to CAG scrutiny, Parliamentary accountability and Right to Information (RTI) Act, there is a strong case for applying the same to the private sector.

PPP MODEL

Governments across the globe have been entering into a wide array of arrangements with the private sector to utilise its capacities in developing and operating some of key public services.

For implementation of projects, public money, assets, and critical functions are transferred to private hands through privatisation, or the public private partnership (PPP) model. However, such a transfer needs proper checks and balances taking into consideration costs and benefits as well as risks and opportunities, lest it results in failures and unmet social needs.

Public regulations and accountability would still be relevant for unregulated privatisations and private profits, particularly in a developing country such as India, in order to make economic growth more inclusive and sustainable.

Further, for successfully running a PPP project, mutual coordination and cooperation of various government agencies is very important. Proper regulatory mechanisms are required for sustenance of the project. It is very important that good corporate governance practices are followed religiously.

Transparent decisions based on ethical practices ensure that the interests of all stakeholders are protected, along with efficient use of resources that results in better products and higher profits.

The need for higher investments through PPPs and rising public participation in equity issues makes a strong case for proper checks and balances. Systems such as RTI and public auditing akin to CAG should be a part of the non-government corporate sector.

At present, the RTI Act covers only the government sector, including public sector enterprises (PSEs), broadly based on the premise that the sector uses public money. RTI, which was earlier looked upon with scepticism, for being a hurdle in strategic decision-making, has now become more acceptable for improving PSEs’ image and their functioning.

Corporate decisions based on transparency, accountability and ethics have become a hallmark of corporate governance practices all across the world. The public sector has always been subject to transparency and public accountability, and RTI has helped it in this regard.

NGO ACCOUNTABILITY

The concept of corporate social responsibility (CSR) is closely linked to achieving inclusive economic and social development. At the same time, CSR initiatives are a potent tool for goodwill and image-building for corporates, thus increasing investors’ confidence in them.

The very basis of PSEs’ existence, namely, growth with equity and social justice, conforms to the objectives of CSR. The public sector’s initiatives are in line with applicable rules and regulations, and thus scope of wasteful expenditures and diversion of funds under CSR is negligible.

NGOs, too, are involved in handling large public funds for carrying out social welfare programmes. These NGOs are not subject to either RTI or controlled through any statutory/regulatory norms and social audit. In such a case, it is of utmost importance to bring the private sector and NGOs under public accountability and RTI.

Social service providers, be it private sector undertaking investments under CSR or non-government organisations (NGOs) providing social service using large public funds, should also be brought under RTI.

Extension of the RTI Act would bring greater transparency and accountability. And, in case RTI Act is extended to projects with public money it will not be unprecedented, as 19 countries have already brought their private sector in utility segments under RTI-like regulations.

A recent Transparency International India Survey has observed that PSEs signing an “integrity pact” with the organisation concerned have helped in increasing transparency in their procurement process.

It has also categorically mentioned that “bribery from the officials of private sector funds is rampant”, and has pointed out that government must bring a strong deterrent tool to curb corruption in private sector. It has thus made a strong case for the private sector to adopt the “integrity pact” in order to bring transparency in procurement process.

The idea of extending public accountability to the private and social service sector is to encourage judicious use of resources and enhance efficiencies in the system, thereby promoting faster, sustainable and balanced economic growth.’

(The author is Director General, Standing Conference of Public Enterprises.)

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