You have to hand it to Vinod Rai, the Comptroller and Auditor General (CAG) of India for his ability to release choice weapons of mass destruction when the Parliament is in session. He did so earlier with the 2G spectrum report which had claimed that the presumptive loss in allocation of 122 new and 35 dual technology licenses was somewhere between Rs.45,614 crore and Rs.139,652 crore.

Rai has done it again. On 17 August 2012, during the monsoon session of Parliament, the CAG released Report No.7 of 2012-13: Performance Audit of Coal Blocks and Augmentation of Coal Production. This ‘Coalgate’ report gives no range unlike its 2G brethren. With unerring precision, it claims that delays in putting in place a process of competitive bidding for coal blocks led to huge financial benefits for the private sector players who were allotted such blocks — which the report pegs at Rs.1.86 lakh crore. With a headline item so powerful, plus such exquisite timing, it is hardly surprising that hell has broken loose in Parliament and the national media.

Shorn of hyperbole, here are a few questions that we need to think of.

Question 1: Is the CAG constitutionally entitled to do what it is doing? The answer is an unambiguous ‘yes’. Article 148(1) of the Constitution of India says that there shall be a CAG ‘appointed by the President by warrant under his hand and seal and shall only be removed from office in like manner and on like grounds as a Judge of the Supreme Court’. Article 151(1) says that the CAG’s reports relating to ‘accounts of the Union shall be submitted to the president, who shall cause them to be laid before each House of Parliament’. And the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971, clearly sets out what the CAG can do. Whatever some people may feel or say, neither this nor the 2G CAG report was beyond the pale of law or remit.

Question 2: Does the CAG have expertise beyond doing routine transaction audits? Specifically, how sound is its methodology to arrive at a number such as Rs.1.86 lakh crore for the coal blocks? This is important, because it is the sheer size that raises hackles. Here, I believe that the CAG is on shaky ground. As Surjit Bhalla has pointed out [Indian Express, 22 August 2012], the estimate of Rs.1.86 lakh crore is a far cry from the earlier draft estimate of Rs.10.7 lakh crore, of which the private sector’s share was Rs.5 lakh crore. As Bhalla pointed out, “How does one explain a two-thirds reduction in an estimate made by ostensibly the premier accounting agency in India… in a space of three months for something that happened more than five years ago?”

There are other errors as well. When you estimate the benefits of allocating a scarce resource during 2004 to 2006, you don’t use the much higher average sales price of coal during 2010-11 to calculate disproportionately large benefits, as the CAG does. You use the average price for 2004-06. Moreover, if you are looking forward to 25 years of life for each such allocated coal block, you had better discount that cash flow. The CAG does not. I haven’t re-worked the numbers. But by Bhalla’s calculations, it seems that the amount at stake is far less than the Rs.1.86 lakh crore that the CAG has trumpeted.

Question 3: Does the Government of India have a credible defence? As of now, all that we have seen is Manmohan Singh’s 32-paragraph response in Parliament. It is a poor defence. To me the give-away paragraph is para.25: “The CAG report has criticised the Government for not implementing this decision speedily enough. In retrospect, I would readily agree that in a world where things can be done by fiat, we could have done it faster. But, given the complexities of the process of consensus building in our Parliamentary system, this is easier said than done.” True enough, but such a lame-duck response just doesn’t cut. Worse, it suggests that there was something rotten in the state of Denmark, which the PM as coal minister glossed over.

Question 4: Will we see yet another Supreme Court intervention, as in 2G? Quite likely, unless the government buckles and cancels these allocations. That will, of course, have damaging consequences for thermal power supply in the country, which is of no consequence to a power starved nation such as ours.

Question 5: What does this do to decision making? Don’t expect any ministry or department to take major decisions between now and 2014. Why should a civil servant risk imprisonment, when he can do nothing and earn his pension?

Question 6: Is daily screaming and adjournment of Parliament what one should expect of legislators? Yes. You see it.
  
   
Published: Business World, September 2012