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
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