With the CAG Mr. Vinod Rai going before the JPC today, it is interesting to examine if the 2G report produced by the CAG is indeed within the CAG’s mandate or did it exceed the CAG’s mandate.
The CAG’s own guidelines define “performance audit” as follows:
Performance audit is concerned with the audit of economy, efficiency and effectiveness and embraces:
(a) audit of the economy of administrative activities in accordance with sound administrative principles and practices and management policies;
(b) audit of the efficiency of utilisation of human, financial and other resources, including examination of information systems, performance measures and monitoring arrangements and procedures followed by audited entities for remedying identified deficiencies; and
(c) audit of the effectiveness of performance in relation to the achievement of the objectives of the audited entity and audit of the actual impact of activities compared with the intended impact.
Note that none of the Three “E”s mentioned above relate to the revenue of a department / program. All three relate to how a department / program is administered and how its resources (human, financial and other resources) are utilized. The 2G report had an entire section devoted to calculation of presumptive loss due to not auctioning spectrum, i.e. it focused on revenue generation of the telecom department. Hence, that section is clearly beyond the mandate as defined above.
The CAG guidelines further defines each of the three “E”s as follows:
Economy
1.11 Economy is minimising the cost of resources used for an activity, having regard to the appropriate quality. Economy issues focus on the cost of the inputs and processes. Economy occurs where equal-quality resources are acquired at lower prices i.e., spending less…
1.12 …The question to be asked by a performance auditor is, do the means chosen represent the most or at least a reasonable economical use of public funds?
Clearly this has nothing to do with auditing the revenue (or loss of revenue) of a department.
Efficiency
1.13 Efficiency is the relationship between the output, in terms of goods, services or other results and the resources used to produce them. Efficiency exists where the use of financial, human, physical and information resources is such that output is maximised for any given set of resource inputs, or input is minimised for any given quantity and quality of output, i.e., spending well.
1.14 The main question related to efficiency is whether the resources have been put to optimal or satisfactory use or whether the same or similar results in terms of quality and turn-around time could have been achieved with fewer resources. The question refers to the relationship between the quality and quantity of goods and services yielded and the cost of resources used to produce them, in order to achieve the results.
This definition of efficiency uses the word “resources”. And the CAG considers spectrum as one of the “resources” available to the DoT. Fair enough.
This definition of efficiency says that “output should be maximised for any given set of resource inputs”. The CAG contends that for a given set of spectrum, revenue to exchequer was not maximized (hence “loss to exchequer”). This implies that the “output” to be maximised is revenue. In my opinion, this is a specious argument. The output to be maximized was tele-density (as per the 10th Five Year Plan recommendations). By keeping spectrum price low, the DoT was aiming to maximize tele-density. This is the crux of the issue. The CAG got this wrong, and has pretty much refused to listen to the DoT viewpoint and gone to town with a “loss to exchequer” figure of Rs. 1.76 Lakh Crores.
Effectivness
1.17 Effectiveness is the extent to which objectives are achieved and the relationship between the intended impact and the actual impact of an activity. Effectiveness addresses the issue of whether the programme/activity has achieved its objectives i.e., spending wisely…
1.18 Effectiveness is essentially a goal-attainment concept….Are the objectives of the policy being met by the means employed, outputs provided and impacts observed? Are the means employed and the results achieved consistent with the objectives of the policy and – perhaps the most difficult – are the impacts really the results of the policy rather than other circumstances?
The CAG has completely ignored this aspect of the audit. If they had paid attention to this aspect, they would have had to dig deep into questions such as “Having give spectrum cheap, did tele-density indeed increase? Have the disadvantaged sections of the population indeed benefited by this increased tele-density?” etc. Since many poor people do carry mobile phones in India, and presumably derived some benefits from that, some of the answers to these questions would have been in the affirmative, and the CAG report could have been much more balanced than it turned out to be. As it stands, since the CAG ignored this effectiveness aspect, the CAG report has simply become a government bashing one.
The story does not stop here. The CAG guidelines have some specific observations relating to “policy”:
1.23 Performance auditors may find answers to the following two basic questions:
- Are things being done in the right way?
- Are the right things being done?
1.24 The first question means, broadly speaking,whether policy decisions are being
carried out properly….1.25 The scope for analysis becomes considerably greater by posing the second question, i.e., whether the right things are being done….
1.26 However, in the effort to find answer to the second question, adequate caution should be exercised not to go beyond the mandate by trespassing the borderline to the political territory (policy). In short, while the correctness of the information or inputs that were considered while framing the policy and sufficiency of the programmes and resources to fulfil the policy objectives may be assessed and reported, the policy per se is not to be questioned.
So, did the CAG question the policy per se when it pointed out that there was “loss to exchequer” (I prefer the term “revenue forgone” as being more appropriate) as a result of the policy decision to award spectrum, without auction, at 2001 prices? In my opinion, the answer is “yes”. When the CAG condemns a natural consequence of a policy decision (if you auction certainly you are likely to get more money; if you do not auction, a natural consequence is that you forgo that extra money), it is in fact condemning the policy itself. And in the process, it oversteps its mandate.
These are fairly technical arguments. And it is unlikely Mr. Murali Manohar Joshi, who chairs the JPC, has the ability (or inclination) to understand these arguments. It will be interesting to see what comes off today’s questioning of Mr. Vinod Rai.
