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Economic & Political Weekly EPW october 27, 2012 vol xlviI no 43 19

multilateral trading system and the role

of the kind of trade governance that we

do have in development.

The turn to plurilaterals is not new. In

fact, the history of the post-war trade

system is almost entirely a story of

plurilateral agreements. The Uruguay

Round and the single undertaking that itembodied stands out as the exception.

As such there is a considerable historical

record from which one can understand

the likely implications of the current

much vaunted shift towards plurilater-

als following the DDA impasse. This

record is sobering for LDCs. While

plurilateral negotiations have undoubt-

edly been a means of securing forward

movement in trade opening, this has

provided few benefits for less powerfulstates, particularly the LDCs. Through-

out the DDAnegotiations India has placed

itself as a champion of the interests of

the wider developing world. If it is to ful-

fil this role, India must resist the turn to-

wards plurilaterals and the sidelining of

the LDCs that this approach implies. The

DDA promised development. Plurilaterals

will not deliver.

Note

1 Not another mysterious word but a collective

noun for any agreement or movement by states

involving less than the whole group.

T S R Subramanian (tsrsubramanian@gmail.com)is a former cabinet secretary to the

Government of India.

CAG: A Necessary Evilor a Bulwark?

T S R Subramanian

In the past five decades, the CAGs

audit reports, however incisive,

were received with general apathy

by the government. Contrast this

with the follow-up on the

Commonwealth Games, Adarsh,

2G and Coalgate reports, which

have all triggered criminal casesof one kind or the other. The

institution ofCAG has suddenly

come of age and has realised its

public responsibility. A startled

government in power has been

floundering to find a credible

reaction. There have been two

predictable lines of response to

question the jurisdiction and

mandate of the CAG and to question

the presumptive loss computed

by the agency, implying that the

reports have no credibility. In

other words the main approach

has been to shoot the messenger.

The three basic pillars of the

Constitution, viz, the legislature,

the judiciary and the executive,

have the primary responsibility for man-

aging the affairs of the country; how-

ever the role of other significant consti-

tutional and statutory bodies in ensuring

quality of governance cannot be under-

estimated. Institutions like the Election

Commission (EC), the Comptroller andAuditor General (CAG), the Central Vigi-

lance Commission (CVC), etc, have a

major part to play in ensuring quality

in administration.

Till the early 1990s, the EC, even though

a constitutional authority, functioned

more or less as a wing of the executive

branch a mild friendly agency sympa-

thetic to the party in power, unwilling to

express itself strongly to fulfil its defined

role as the guardian of purity in the

electoral process. With the advent of

T N Seshan, the Chief Election Com-

missioner became an active, independent,

strong-willed umpire to oversee fair play

in the electoral process. Seshan gave

teeth to the organisation it is widely

perceived now that the EC has a strong

bark, and a vicious bite when occasion

demands it. While muscle power has by

and large been eliminated from national

elections, the EC awaits the advent of a

new incumbent, Seshan in a new avatar,to eliminate money-power from the

electoral process.

Much the same picture applies to the

CAG its place as a constitutional agency

has been transformed with the arrival

of Vinod Rai on the scene. Successive

CAGs over the decades, most of whom

came from the ranks of the civil services,

perceived their role as an extension of

their government service career. Other-

wise able as they were, they saw them-

selves as government servants, rather

than as servants of the Constitution, or

Parliament or the people. The institution

in the pre-Rai era did bark now and

then, though with no serious intention

to bite it was a friendly poodle in service

of the government, a toothless tiger;

rather than a fierce watchdog of the

peoples interest in ensuring proprietyin governmental income and expendi-

ture. Vinod Rai did a Seshan to the

institution ofCAG.

While the nation has seen many scams

in the past, the CAGs scrutiny of the ex-

penditure in the Commonwealth Games

(CWG) of 2010, and soon thereafter the

analysis of the 2G spectrum allocation

have changed the way we look at the

books of government. The Antrix-Devas

cozy arrangement exposed by the CAG

was a precursor of the 2G scam, even

though the report on the latter preceded

the former. In a sense the Antrix-Devas

episode was an even more blatant abuse

of the trust reposed in our agencies and

departments the infamous deal got

aborted before it fructified, and then

dropped out of the public psyche, unlike

the 2G matter. It should also be added

that an active TV media played an

important role in heightening public

consciousness on the enormity of thescams. We now see an eerie parallel in

the unfolding Coalgate saga. During this

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period, the CAG has also brought to light

the callous, unscrupulous machinations

of the Adarsh affair. These reports, all

coming within months of each other,

have brought out the essential venality

of those in power in recent times the

present head of the CAG needs to be cred-

ited with the achievement of bringing aconstitutional agency to realise its public

responsibility, and perform in a free,

fearless, impartial public service mode.

In the previous five post-Independ-

ence decades, the CAGs audit reports,

however incisive or accusatory, were re-

ceived with general apathy by the gov-

ernment; none in office took them seri-

ously they were seen as irritants, to

be tolerated, or ignored or mildly acted

upon depending on the circumstances.

One cannot recall a single instance in

the past when any serious action was

taken against any public servant based

on a CAG audit para(s); the system

brushed these off. The CAG itself did not

pursue its own comments with vigour;

as far as anyone can remember, no pros-

ecution of any sort followed a CAG re-

port. Contrast this with the follow-up

on the CWG, Adarsh, 2G and Coalgate

reports, which have all triggered crimi-

nal cases of one sort or the other. Theinstitution of CAG has suddenly come

of age.

A startled government in power has

been floundering to find a credible reac-

tion to a newly-transformed CAG, hith-

erto a reliable friend, suddenly turned

into a fierce critic. There have been two

predictable lines of response to ques-

tion the jurisdiction and mandate of the

CAG and to declare that he has no au-

thority to question the right of govern-

ment to make policy; and secondly to

question the presumptive loss comput-

ed by the CAG, implying that the reports

have no credibility in other words the

main approach has been to shoot the

messenger. It may be useful to dwell

briefly on these two lines of attack.

Mandate of the CAG

The post-Independence origin of the office

of the CAG derives from Articles 148 to

151 of the republics Constitution this isin a sense a continuation of the powers

exercised by the auditor general of India

immediately before 1947 in relation to

the accounts of the dominion of India

and of the provinces respectively. The

CAG (DPC) Act passed by Parliament in

1971 defines the powers, duties and con-

ditions of service of the CAG. The Act

gives authority to CAG to audit all ex-

penditure from and receipts into theconsolidated fund of India and the

states. Section 23 of the Act empowers

the CAG to determine the scope and ex-

tent of the audit. Among other provi-

sions, the DPC Act lays down the princi-

ples determining whether or not an enti-

ty falls within the purview ofCAGs audit.

The Act empowers the CAG to make

regulations to give effect to the provi-

sions of the Act in regard to the scope

and extent of audit. This was followed

by an office memorandum from the Min-

istry of Finance in 2006 clarifying the

role of the CAG in doing the performance

audit. In pursuance of these provisions,

the CAG has been conducting a per-

formance audit in addition to financial

and compliance audits. The perform-

ance audit by definition includes audit of

economy, efficiency and effectiveness

in the receipt and application of public

funds. It is abundantly clear that the

mandate is wide; the interpretation of itsown role in respect of the audit is within

the purview of the CAG, which is a consti-

tutional authority; much like the freedom

the judiciary has to define its own role in

the interpretation of the Constitution.

The government sources have levelled

allegations implying that the CAG is

dabbling in policy matters, which are

exclusively in province of the executive

there is deliberate obfuscation in leve-

lling this accusation. A reading of vari-

ous recent reports does not give any

credence to the allegation that the CAG

has suggested any specific policy pre-

scriptions or questioned any particular

policy adopted by the executive in each

case. Clearly, while not commenting on

the policy itself, the mandate of the CAG

permits him to comment on the efficiency,

and financial impact of each policy deci-

sion, without questioning the legitimacy

of the decision. It is not merely within

the jurisdiction of CAG to make suchcomments, this is part of its mandate,

indeed duty to point out the financial

implications of policy decisions on public

funds. Thus, if the purported objective

of a particular policy is to reduce the

cost of a service to the general public, it

is perfectly legitimate for the CAG to ad-

dress the question whether the public

actually gained through that particular

policy measure, or whether the marginwas siphoned off by individual benefici-

aries who were allotted the relevant

scarce resources whether windfall

gains were deliberately or otherwise

handed over to favoured individuals.

One needs to refer to the role played

by private auditors, who are by defini-

tion friendly, while auditing the books

of private companies. Those auditors,

who value their reputation, enter into

every aspect of the companys policies,

procedures and performance, often not

too gently. Thus internal risk manage-

ment policies, systems and procedures

come for detailed comments; conflict of

interest situations as also for example,

the mergers and acquisitions policies

performance, and presumptive loss are

commented upon along with a critique of

the methodologies followed. Qualifica-

tions are expressed when found neces-

sary. It is for the board of the company to

take appropriate remedial action, and forthe shareholders to take a final view. The

CAG, with a constitutional mandate, is

not expected to do any less, especially

when the people are the shareholders.

It is expected to criticise strongly when

occasion demands it is its duty.

In the context of Coalgate, it is neces-

sary to note that the government on its

own volition had decided in 2004 to go

in for the competitive bidding route for

allocation of coal blocks. Indeed, the in-

dictment of the screening committee

procedure followed till then by govern-

ment, was from its own ministrys sec-

retary, who wrote strongly in 2004

about interferences and undue influ-

ences, as also windfall benefits to the

chosen allottee. These angles were not

invented by the CAG. It was perfectly le-

gitimate for the CAG to point out that

the government did not follow its own

prescription its own decision and

preferred to continue a discredited (byitself) screening procedure for the next

six years. It was not only within the

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Economic & Political Weekly EPW october 27, 2012 vol xlviI no 43 21

mandate of the CAG, but its duty to raise

these questions, as the watchdog of

public finances.

Credibility of Loss Figures

The other major plank of attack relates

to the charge that the CAGs public loss

figure of Rs 1.86 lakh crore is heavilyexaggerated. The main arguments are

variations of the following themes: the

CAG ought not to have given any num-

bers; there was no loss to government as

hardly any coal had been extracted; the

notional sale price was not discounted

over the income stream period of say 30

years; the cost relating to each mine

would be different depending on the

difficulty of extraction and it was inap-

propriate to apply one number for all,

etc. All these arguments are superficial

and specious. Even a first reading of the

coal report would yield a clear statement

of the assumptions made by the CAG in

the calculations, and the methodology

used by him in reaching the figure of

Rs 1.86 lakh crore. The CAG clearly

points out that this is an indicative fig-

ure, probably an underestimate. How-

ever it brings out the enormity of the

mismanagement (deliberate?) of the

allotment process. None of the assump-tions made by the CAG in reaching this

number can be seriously questioned in

substance. However, it is entirely possible

to make another set of credible assump-

tions, which may lead to differing figures.

In an economy where there is already a

shortage of coal to meet the requirements

of the power, cement and steel sectors,

there is every likelihood of strong escala-

tion in coal prices over the next couple of

decades; it is a credible scenario that the

rate of market price escalation would

outpace any likely cost-of-finance dis-

counting percentage. From this perspec-

tive, there has been an underestimation

of the gains accruing to the allottees.

It is interesting to note that the market

price of coal has already shot up in the

past couple of years; indeed the current

landed price of imported coal is many

times a multiple of the price assumed by

CAG in his presumptive loss calculation

the argument that coal is sitting inmother-earth is frivolous, specious and

an insult to ones intelligence.

The CAG has clarified in his report

that he has used the figure for reserves

and cost, as computed by Coal India

itself, which is a public sector body. Any

alternate figure of windfall profits or

presumptive loss could be computed

by any interested individual, so long as

the assumptions are reasonably credible the CAG gave his version, well within his

mandate it is open to anyone to ques-

tion the numbers on merit; it is not open

to anyone to challenge CAGs right to

make reasonable assumptions and esti-

mate gain or loss. It is interesting to

note that in a recent opinion, the apex

court has clearly indicated that the CAG is

not a munim of the government it is a

constitutional authority with a significant

role as the watchdog of public finances.

The CAG does performance or efficiency

audit, as part of its mandate. However,

the audit is not forensic in nature it

does not point fingers at any govern-

ment servant or private entity for wind-

fall gains or loss to government as the

case may be. The Coalgate issue is not

merely one of deliberately engineering

windfall profits through the crony route

it involves aspects relating to misgov-

ernance, possibly deliberate failure to

implement governments own policy, pos-sible conspiracy apart from fraud and

misrepresentation by some or many of the

allottees. Any such report of the CAG,

which is an audit of finances and accounts,

needs to be followed up by an investiga-

tion as to how such a major lapse occur-

red, leading to a massive leakage of public

funds. The First Information Reports

registered by the Central Bureau of Inves-

tigation (CBI) do not do full justice to the

scope of possible fraud, misdemeanor or

criminality, and other acts of commis-

sion and omission by public servants and

others. It is imperative to have a major

investigation carried out by a special

team to look into all aspects of this matter,

not only to punish the guilty but also to

explore optimal systemic changes. This

was not within the scope of work of the

CAG, whose mandate stops at submitting

the report to Parliament it is for the execu-

tive to usher in punitive and reform meas-

ures in the wake of this massive scam.A new era in the functioning ofCAG

has dawned. It would be recalled that

nearly three decades ago the then Prime

Minister Rajiv Gandhi had commented

that only 15 paise per rupee of rural

development expenditure reaches the

intended beneficiary the rest is sipho-

ned off by the political, bureaucratic and

other intermediaries. The country spends

massive amounts on rural developmentthrough many programmes. On the spe-

cious ground that the expenditure is

undertaken by the state governments

(rural development is a state subject),

the CAG so far has not considered it nec-

essary to investigate such large leakages.

It is taken axiomatically that it is normal,

acceptable, and legitimate(?) for the state

machinery and its cohorts to take a large

cut of public finances, and no questions

need be asked! It is now time to visit this

area, usher in new innovative methods

to drastically reduce the leakages, using

technology as appropriate. The CAGneeds

to take an increasingly important role in

this area, as large public funds are in-

volved. A whole new regime to supervise

public developmental expenditure needs

to be put in place the CAG has a pio-

neering role to undertake in this regard,

however thankless and onerous the task

may be.

New questions have arisen whetherthe public-private partnership (PPP)

projects would fall within the purview

of a CAG audit. The answer has to be in

the affirmative. A reading of the current

mandate of the CAG clearly indicates

that it is when public funds are in-

volved, the CAG has a legitimate role. It

is to be noted that large-scale lobbying

has already commenced to keep PPP

projects outside CAGs purview. Indeed

even in the unlikely situation of a legal

opinion that PPP projects are not cur-

rently covered byCAGs mandate, it will

be imperative to change the mandate,

for inclusion. Given the past record of

successive state and central governments,

given the large risks and expenditures

incurred in fighting for public office, it is

reasonable inference that the genuine

motivating factor, with perhaps some

exceptions, is the opportunity for mak-

ing illegal gains. Given this obvious

background and experience, it is likelythat the trend to go in for PPP projects,

on the pretext of superior implementation,

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The Muslim Political Partiesin Uttar Pradesh and Assam

Mirza Asmer Beg

A comparative assessment of

three Muslim-based political

formations in Uttar Pradesh

and Assam reveals varied

performances by these outfits in

assembly and Lok Sabha elections.

The Muslim League, which was

renamed as the Indian Union

Muslim League after the coun-

trys Partition, with the objective of be-

coming an all India party, never received

country-wide acceptance and managed

to survive and get a respectable stand-

ing only in the state of Kerala. Several

decades later, politician Syed Shahabud-

din did try to form the Insaf Party with

the same aims, but he too failed. His belief

that Muslims, other religious minorities,

those from the scheduled castes, the

scheduled tribes and the backward

classes could be mobilised under one

overarching umbrella, did not actualise.

Some Muslim intellectuals have come

round to the view that it was easier and

more viable to form parties catering to

the Muslim interest at the regional

level, rather than at a pan-national level.

Others have suggested that Muslims

need not form any political party fortheir own, as regional parties have

mobilised Muslims politically.

It is this view that is seen in action in

states such as Uttar Pradesh (UP) where

large sections of Muslims have alter-

nately aligned with either the Samajwadi

Party (SP) or the Bahujan Samaj Party

(BSP). Yet, over time, the community

seems to have realised that these politi-

cal parties as well as the self-proclaimedMuslim leadership have used each other

for their self-seeking political and vested

interests at the cost of most of the com-

munity who continue to remain educa-

tionally and economically backward.

The Muslims realise that they have been

used and looked upon as a vote-bank

and the issue of a Muslim-led political

party has not been given serious con-

sideration, partly because historically

except the Muslim Majlis led by Faridi

which was successful in the 1960s and

1970s, there have not been any Muslim-

led outfit that has seen any political

success in UP. The Muslim community

has also been guided by the need to

keep the communal Bharatiya Janata

Party (BJP) out of power and to do so it

has consciously avoided the formation

of a Muslim party that could aid the BJPs

agenda of consolidating the Hindu vote.

But with the relatively poor performance

of the BJP since the early 2000s, theMuslims have been organised and mobi-

lised by outfits like the Peace Party(PP)

Mirza Asmer Beg (masmerbeg@gmail.com)

is with the department of political science,

Aligarh Muslim University, Aligarh, Uttar

Pradesh.

will accelerate to provide a new major

vehicle to meet political needs. One is

not arguing against PPP projects all that

is being stated is that since public funds

will be involved, audit by a vigilant CAG

would be an imperative requirement.

One other element needs to be men-

tioned. Hitherto, the selection to thepost of the CAG and some other key posi-

tions, has been exclusively in the prov-

ince of the government of the day. Sadly

one has seen how this privilege has been

seriously abused in so many critical in-

stances in the past decades. The theory

that the CBI is the governments best

friend will find a ready echo in the

minds of most citizens. Indeed the apex

court had to intervene some years back

to establish a selection committee for

the post of the CVC. One has to look at

many states, where selection to critical

posts is a mockery the way the posts of

the chief secretary and director general

of police, are filled up in many states

would raise eyebrows. It can be argued

that by consistently abusing its selection

powers, the government has forfeited its

moral authority to select people to high

places, particularly in constitutional andstatutory posts. Hitherto, the CAG was seen

as an appendix to government. Now that

it has assumed its legitimate constitutional

role, the process of selection has to be

reviewed, to bring in impartiality along

with merit, with a selection process out-

side the direct control of government. If

this is not done soon on the govern-

ments own initiative, there is every

likelihood of the judicial system re-

minding the government that fair play,

transparency and impartiality have to

be enforced as a working procedure.

Conclusions

It is needless to stress that a countrys

governance is only as good as the quali-

ty of its major instruments of govern-

ance its constitutional and statutory

agencies. Given the essential vulnerable

nature of the individual human being,

systems and institutions need to bestrong, robust, independent, impartial,

fearless, and imbued with a sense of

public service. Some previous govern-

ments have contributed to the emacia-

tion of key instruments of governance

for example, the civil services

when the constant need is for the gov-

ernment of the day to ensure that the

instruments are maintained in good

shape on a continuous basis. That the

CAG has gained in stature in the past

couple of years is a good sign, and

augurs well.