Plugging the leaks

CAG report on farm debt relief underlines need for action

The Comptroller and Auditor General of India continues to be a thorn in the side of the United Progressive Alliance. Its latest report, which led to furious scenes in Parliament on Wednesday, examines the scheme announced in the Budget for 2008-09 in which debt of certain farmers in economic distress was to be waived along with the grant of some form of additional relief. Some think the scheme helped the UPA win the 2009 general elections; it is certainly emblematic of a particular sort of thinking about policy in the Congress party and the government. The CAG, however, audited just over 22 per cent of the accounts that had been subject to the package, and found various errors. Errors were of both types: banks granted a waiver to some ineligible farmers, and denied it to some who were eligible. Nor were the records as pristine as they should be, claimed the CAG report; there was evidence of tampering and overwriting.

The CAG holds the Department of Financial Services in the finance ministry responsible for not taking action, in spite of, it alleges, "being aware of numerous flaws in the scheme". Of course, the errors were committed by the public sector banks responsible, which the CAG does not audit, and the nodal authorities meant to handle the monitoring of the banks were the Reserve Bank of India and the agricultural development bank Nabard, over which the CAG has no direct authority. It holds the RBI responsible for accepting the banks' claims without independent verification, and the Department of Financial Services for accepting the nodal agencies' claims, even though there were holes in them. Both the government and the RBI have been forced to respond. The prime minister said in Parliament that the Public Accounts Committee of Parliament should deliberate on the CAG's report - which he pointed out is the normal process - and the government would take "stringent" action against "defaulters". Perhaps, however, the government should not wait, and emulate the RBI's belated swing into action. The central bank said on Thursday that it was the personal responsibility of the heads of banks to recover the money extended to ineligible accounts. After all, if some bank officers used the scheme to cover up bad agricultural loans, the banks should be able to crack down on offenders.

There are two further points of interest. The first is that this demonstrates the danger of transfer systems, even through bank accounts, when they are not accompanied by proper monitoring all down the line. It is clear that a cash transfer system to replace government benefits in kind is not a panacea for all the ills of India's fragile and overextended welfare state. But the report's numbers are also worth noting. It said 8.5 per cent of the accounts checked were inappropriately granted access. Perhaps the leakage arising out of irregular transfers under the farm debt waiver scheme is significantly lower than gaps found in similar government initiatives earlier, because these benefits were routed through banks. So for the UPA government, the lesson to be drawn from the CAG audit is how it can speed up an effective roll-out of the Aadhaar scheme to plug leakages in implementing such a benefits transfer programme.