Caged in by the CAG

Written by Pratik Kanjilal | Updated: Apr 29 2014, 08:30am hrs
The Supreme Court has set a disconcerting precedent by permitting the Comptroller and Auditor General (CAG) to audit private telecom companies. The divide between the public and private spheres was blurred over 20 years ago by the public-private partnership (PPP) model but, now, a government agency has been allowed to vault over the ruins of the intervening fortifications. It follows that any business which licenses or benefits from a scarce common good is open to public audit since the state is the final owner of all such goods. Besides, any company which transfers to government a portion or derivative of accruals must also be open to audit, to set at rest fears of under-reporting. Can individual taxation be read as the share of personal accruals due to government Just asking.

While industry is irritated by the Supreme Court directive and the costs it will impose, there have been far too many instances of possible collusion between political authority and corporate interests in the distribution of resources. After scams in the allocation of 2G spectrum and coal blocks, neither party has the moral right to raise a din. Meanwhile, the joke that the CAG wants to audit your childs pocket money has an uncomfortable ring to it, suggesting that, in the future, the limits of the CAGs reach will have to be set.

Ideally, this should develop naturally in the course of usage, and the CAG may be prescribed a dose of self-denial. While the body may not be too keen to probe the pockets of children, there are other areas that it may wish to be unenthusiastic about, in its own interest. The office has become incredibly political over the last decade and needs to regain the image of a disinterested appraiser. Otherwise, it may find itself caught up in the politics of growth and development which will become ever more important as India seeks the stature of the third biggest economy after China and the US. That would be a quick and dirty way to become irrelevant.

For instance, the CAG should stay well clear of organisations in research and development. R&D and the intellectual properties it generates are important for fast-growing economies, like the UK in the age of steam and the US during the Cold War. India, which used to be R&D-poor, has recently begun to spend on research and even aspires to be a space power. While the private sector leads the way, companies like BHEL and Bharat Electronics Ltd have been investing in R&D for well over a decade, and defence research is domestic by definition. In fact, before liberalisation, state-sponsored enterprises like Uptron (in Uttar Pradesh) and Keltron (in Kerala) had brought innovation to the television set market.

Currently, the Indian governments investment in R&D lags behind that of much smaller Asian countries. But this will change if the government appreciates the returns which may be anticipated. Even if they are not explicitly structured as partnerships, government research projects will very likely be executed by privately-run labs and their products may be distributed and promoted by NGOs. This is simply the most efficient way to operate, letting each participant focus on what it does best. It would be disastrous if the CAG decided to wade in, pronouncing judgement on the efficiency of allocation in such projects and speculating about revenues possibly lost.

Besides, new resources will be identified in the future from the commons. They could put bauxite and spectrum in the pale. While gene therapy finds very restricted use now, it will be used widely in the future. Who will own the genes used, the humans from whom they were mined or the corporates who own the labs which worked on them Or will they be treated like other natural resources, and allocated and licensed by government The last looks like the scenario most likely to work. But in that case, would the government wish to subject all the parties involved, including physicians and clinics, to a CAG audit And would Parliament take the CAG report on, say, blood cancers, as seriously as its report on panchayati raj in Tripura The prospect seems absurd.

The problem is not merely that of government and the private sector auditing for different objectives, using different accounting standards, but of a clash of cultures. Evaluating research budgets is rather different from evaluating spends on a bridge or even a nuclear plant, since future value may be impossible to quantify today. It may be recalled that the partnership between the MIT Media Lab and the Indian government had initially collapsed under culture shock. The Indian party wanted immediately quantifiable deliverables while MIT had more confidence in casting bread upon the waters. If government tries to make the private sector conform to its ideas of prudent investing in research, such confused outcomes will become commonplace.