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A K Bhattacharya: CAG's soft target

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Why is it that the reports of the Comptroller and Auditor General of India, or CAG, have made news more frequently these days? It is not that the office of the is producing more audit reports. Nor has the government’s apex auditor employed an over-to get its reports more mileage in the media through better coverage.

The fact is that there has been a marked change in the way the CAG chooses its audit subjects. Even until recently, the CAG would focus primarily on the government’s major tax or non-tax revenues and expenditure under various schemes. In the process, its reports would underline the various ways the government has been less efficient in plugging loopholes in its revenue collection system or allowing wastage or slippage in expenditure on projects and schemes. Only once in a while would the CAG bring out a report that would hit the front pages of national newspapers, like the one on the Bofors gun deal.

That, however, has changed in the last few years. With unfailing regularity, in almost every session of Parliament, the CAG’s reports have been making waves. And not because they are on mundane issues like the government’s tax revenue loss, but on how large amounts of revenues have been lost because of the manner in which contracts or government resources were awarded to private sector entities. Thus, you have had CAG reports on revenue losses on account of the allocation of telecom spectrum and award of contracts to private sector parties to build new airports or set up power projects. Each of these reports has raised a storm and the government has done everything possible to avoid further embarrassment. In short, the government’s image has taken a hit.

Make no mistake about this. The change in scenario has happened not because the CAG has shifted its focus of audit enquiry. What has prompted the CAG to come out with these earth-shaking reports on controversial deals is the steadily growing role of the private sector in areas that were hitherto reserved for the public sector or even government departments. If the CAG today has to look around for projects or schemes for audit purposes in any central ministry, it is likely to stumble upon a project in which the private sector has a role to play. So, while it continues to routinely produce those reports on the government’s tax revenues and expenditure on various social schemes without raising too many eyebrows, the few reports that manage to raise its profile as an effective watchdog are all about government projects in which private sector partners have made undue revenue gains at the cost of the exchequer.

This is perhaps understandable. The private sector’s role in new projects has been increasing steadily. In the 10th Five-Year Plan, the private sector accounted for a little less than a fourth of the total investment outlay. The private sector’s share in the total investment outlay in the 11th Plan, which ended in March 2012, rose to around 36 per cent. And in the 12th Plan, the private sector’s share is set to be more than half. The rise of the public-private partnership (PPP) projects in the last few years confirms a similar story. According to the Planning Commission, there are at present more than a thousand with an estimated investment of over Rs 4.86 lakh crore. Most of these projects are in the roads and highways sector, followed by those in housing, aviation, railways and tourism.

The trend is unmistakable. In the coming years, there will be many more PPP projects that should see completion and will, therefore, be ready for audit and financial scrutiny by the CAG. Given the manner in which most central ministries have handled these PPP projects, caring little for transparent norms for awarding contracts, the CAG will have its hands full for at least the next two years. There will be no let-up in the frequency in the CAG’s damaging findings of the way the government may have handled many of these PPP projects, favouring a few private sector players and allowing them to corner undue gains. The clamour for banning the very idea of PPP projects has already begun and is likely to get shriller.

India’s capital requirement for meeting its widening infrastructure gap is huge. The need for increasing investment in infrastructure received priority soon after economic reforms began in 1991. The government of P V Narasimha Rao, with as finance minister, initiated an exercise to attract the private sector to invest in the infrastructure sector. But its rush to offer projects to private entities without going through a proper bidding process resulted in the Enron fiasco. This halted India’s efforts to woo private investment in the infrastructure sector and India’s experiments with the private sector in infrastructure ended prematurely.

More than a decade later, India has just launched the PPP projects, where both the government and the private sector have a role to play. Their execution has given rise to several questions on the manner in which these projects are awarded. For the CAG, PPP projects are a soft target, presented to it on a platter. If the government wants to save its infrastructure plan from another storm, it needs to fix the loopholes and problems afflicting the way these projects are handled. Blaming the CAG will not do.

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