Morality-play can’t be good governance

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Published: November 25, 2019 1:53:49 AM

While the govt, not just CAG/CBI/CVC focus on L-1 bids, no one bothers about the loss in market value caused by the L-1-itis. Sure, CAG needs to evolve as PM says, but when will govt focus on such issues instead of its obsession with just morality?

When the Modi government came to power in 2014, the share of PSUs in the country’s overall market-capitalisation was 22.5%, it is down to 8.4% today (File image)When the Modi government came to power in 2014, the share of PSUs in the country’s overall market-capitalisation was 22.5%, it is down to 8.4% today (File image)

Prime minister Narendra Modi struck the right note when, at a conclave of the CAG on transforming audit, he spoke of how CAG needed to—apart from using digital tools and other innovative methods to catch fraud—think from the perspective of a think tank, not just from the point of view of an auditor whose primary job is to find faults. The CAG, he said, should adopt global best practices, and share experiences of other countries to help the government get more efficient; become a catalyst for good governance, as he put it.

While there could be opposite views on whether an auditor should even get into such issues, it is not clear if the CAG—or any other auditor for that matter—can even make this transition since this requires essentially different set of abilities. But, even if this is possible, it cannot possibly work until there is a complete change in the way the government thinks and operates; morality-play, to put it bluntly, has no role in such a system.

It is clear from the experience of both BSNL and ONGC, to mention just two names, that PSUs are losing out due to the lack of flexibility caused by L-1-itis, or the rule that mandates PSUs must have open tenders for most purchases/orders. So, if the CAG points out that L-1-itis is causing more harm than good and needs to be scrapped, or radically altered, will the government agree to it? Chances are, it won’t. If it was so inclined, it would have, by now, amended Article 12 of the Constitution to remove PSUs from the ambit of ‘instrumentality of state’ that is the reason for L-1-itis. Indeed, even now, when the government is talking of lowering its stake in certain PSUs to below 51%, it is not clear if this is to free them from this constraint; while outlining the plan, in fact, the government usually talks of how the PSU character will not be affected!

When the Modi government came to power in 2014, the share of PSUs in the country’s overall market-capitalisation was 22.5%, it is down to 8.4% today, or by around two-thirds; this means a notional loss in the value of PSUs of Rs 21 lakh crore in the last 5+ years! Ideally, rather than worrying about just whether a PSU manager made money in wrongly awarding a contract—as both the government and the CAG do—this is what the government should be worrying about, and then finding solutions to it. If the renewed CAG—CAG+, to use Modi’s term—were to point this out, would it make a difference and get the government to genuinely free PSUs from all shackles? Unlikely.

If the CAG report said—its performance audit is different from the routine one – that, for instance, most of the fertiliser subsidy is used by rich farmers, would the government scrap the system and move to cash transfers to all farmers? Or, if the CAG pointed out that the system of giving two-thirds of Indians highly-subsidised rations via the PDS cost around Rs 50,000 crore more per year as compared to just giving them cash, would the government scrap the FCI-based system?

While the answer to both questions will probably be a ‘no’, the point is that fraud/theft is not just about one person taking money to do something, it is also about a system that causes a loss to the exchequer even without anyone taking money or seeking favours; a criminal-less crime, as it were!

Or, take the case of the CAG’s 2G report that many influential people blamed the organisation for; the deteriorating financials of the telecom industry, many argued, was the result of the government starting to auction spectrum after the CAG report in 2010. The sky-high prices, actually, had nothing to do with the auction per se, but were the result of bad government policy like keeping spectrum supply short, arbitrarily keeping a high floor price, threatening to cancel licences if telcos weren’t able to buy spectrum, etc. An even bigger problem was the government’s mindset. Ideally, since it was charging for spectrum, it needed to scrap the licence/SUC fee, but it didn’t do this for fear that it would have been accused of benefiting the telcos. Indeed, as this newspaper has said before, if this had been done in 2010, the AGR case the SC just ruled on would have had an impact of a few thousand crore, not Rs 133,000 crore.

While the decision not to scrap licence/SUC fees in 2010 was a UPA decision—this government failed to fix things after it came to power in 2014—another example of morality-play is that of raising natural gas prices from $4.2 per mmBtu to $8.4; the UPA proposed this, but wasn’t able to implement it before the 2014 elections.

When the BJP won, it refused to implement what it felt was another UPA scam, never mind that it was importing gas at $12-14 at that time. It was only after two years of not doing this, when investment in the sector dried up, that the BJP raised prices. In other words, the government’s gas policy for two years—and the telecom policy even now—was that it doesn’t matter if the decision hurt the country’s interests, the public perception of the government’s honesty mattered more.

Atal Bihari Vajpayee’s NTP-1999 policy, to put this in perspective, had people alleging corruption too, but it is this policy that single-handedly drove India’s mobile phone revolution and, within a few years, the government earned more licence fees than what its detractors said it had gifted to a few industrialists.

There are several such examples that can be cited, but the point each one makes is the same: if morality, or the perception that you are incorruptible, is to be the touchstone of policy, the government will always come out with bad policy. And that’s not something an auditor can help you fix.

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