The Telegraph
Monday , September 3 , 2012
Since 1st March, 1999
CIMA Gallary


- Transparent procedures would help development

Reactions of the media and the political class to the last few comptroller and auditor general reports focused on the huge estimated losses and on the guilty. No thought is spared as to how procedures of governance must change to prevent repetition. This is on a par with past reactions to scandals.

No CAG reports have made as much noise as the recent ones on the allocation of natural resources — telecommunications spectrum, coal mines, land for Delhi airport development and coal mines for Reliance Power. Only the report on the Bofors pay-offs when T.N. Chaturvedi was CAG and Rajiv Gandhi was prime minister caused as much of a stir. But the amounts involved then were a fraction of those now estimated.

Reports from the CAG are drab documents that the parliamentary public accounts committee studies and it then instructs the government to change procedures. The report on the 2G scam in telecommunications during this United Progressive Alliance government under the present prime minister became a hot topic, with the CAG estimating stupendous losses to the exchequer owing to wrong or misguided government actions. Similar estimates of loss to the nation in the latest three reports are also based on assumptions. If all the losses in these four reports actually occurred, where has all this money gone? There should be a money trail but no one has found it. Because of the vast sums, the CAG report estimates got huge media and public attention. That done, focus should have been on what is wrong with the system and how it should be corrected.

The CAG is constitutionally empowered to audit all government revenues and expenditures and suggest improvements, identify waste and corruption, and propose new systems and procedures. Public attention became focused on corruption with the Anna Hazare movement, and after the CAG reported serious irregularities and loss.

We must separate the many strands: the extent of loss if any; the culpability of individuals who wilfully took decisions that created the loss, possibly benefiting individuals and enterprises; the actions to be taken against such officers, individuals and enterprises who were beneficiaries, and the systemic issues that must be corrected if such disasters are to be avoided in future.

Economic growth has escalated demand for all natural resources and their prices have shot up. The Central and state governments own all natural resources (except, strangely, water, exploited to the detriment of ground water levels). However, natural resources, whether ‘major’ and controlled by the Centre, like oil and gas, coal, iron ore, or ‘minor’ like limestone, sand from river beds, or land, were licensed on lease by the governments concerned.

All these are valuable resources and have been misused by colluding politicians and bureaucrats and private enterprises have profited from them at the cost of the country. But they have largely been below the media radar. Ministers, officials and private parties have got away with stealing from the nation.

Oil and gas fields leased for private exploration, and the proper sharing of revenues or profits with governments have been questioned. There have also been many instances of illegal mining, particularly with iron ore, limestone, sand and so on. The imbroglio in Karnataka over iron ore is an instance of widespread misuse of government powers to benefit individuals and enterprises, with governments losing large royalties and tax revenues, and decision-making bureaucrats and politicians getting a few crumbs for favours rendered.

The exploitation of natural resources has soared in today’s conditions of rising economic growth, demand for natural resources and land, and their increasing prices. They are a source of huge profits. There are many examples: the special economic zones were in many cases merely a ruse for land development for huge profits. The allocation of gas fields and the production leasing contracts were written in ways that enabled minimal returns to the government. The use of viability gap funding to favour some parties was best exploited by the now defunct Satyam company, Maytas. The wholesale co-option of government servants in the mining of iron ore, in transporting it illegally and exporting it with little tax or other revenues to governments made these miners very rich while benefiting many politicians, political parties and bureaucrats. Land development in the guise of airport development in Delhi has now been exposed by the CAG. Even today, senior ministers like Praful Patel have not been asked to explain the loss of government funds because of suspect decisions. In all cases, the losses were of potential revenues to governments and the earning of illegal revenues by private parties.

By design or lack of foresight or inexperience, the government machinery was not ready with a transparent and neutral method by which such sales/leases/allocations of nationally owned natural resources could be made. A weak coalition government with ministers from allied parties made such misuse easier to execute, with little accountability to the cabinet and little chance of the culprits being disciplined.

The ministries of telecommunications and civil aviation were with powerful coalition partners which were never questioned. Even Congress ministers ensured that the procedures developed left considerable discretionary authority in allocations or in profit-sharing arrangements with the government (as in coal or oil and gas, or iron ore in the case of state governments). None of this was possible without cooperation from collusive bureaucrats.

No method has yet been agreed upon by all for estimating the value of natural resources. In a fast developing economy, the values keep rising and past values might seem grossly low in relation to the present. The CAG has attributed very high values to telecom spectrum, coal, and land for airport development in Delhi. Can there be a value till the resource is used?

If focus was on getting procedures and processes right, we would have had standard procedures for transparent allocations of resources, preferably by auctions. Auction arrangements would have been standardized. Independent authorities would conduct them in public. Production and income sharing would have been standardized for different resources. Illegal mining or other resource exploitation would have been disclosed by a special investigative body.

The country is delaying the opportunity for faster development by building foolproof systems for giving exploitation rights to private parties for gas, coal, telecom spectrum, land in large acreages. The government has vast possible earnings from its ownership of such resources and the CAG raises the appropriate questions about the procedures followed and that raises the imperative need for transparency and fairness.

Administrative reform is long overdue for dealing with bureaucrats and politicians who have misused their position by commission or omission. Indian administrative rules must provide for individual accountability with severe penalties for misdeeds. The delays in judicial processes and the need to get government permission before prosecuting individual government servants and ministers have enabled many to get away with vast ill-gotten earnings. This is what the jan lok pal bill demands.

The CAG also forgets that all natural resources are not equal. Coal is used for power. Power is basic to the economy. It is almost entirely sold at regulated prices. Profit opportunities are not the same as when coal is used for steel or cement. Getting coal out of the ground and converting it into power is imperative. It is in a different class from other uses. Cancelling such licenses would be disastrous.

Open public hearings for allocating national natural resources through auctions is superior to discretionary authority with governments. Will politicians and bureaucrats give up so much?