Recently the prime minister, at a meeting with some newspaper editors, criticised the Comptroller and Auditor General (CAG) for “going into policy issues that were not a part of its Constitutional mandate” (Business Standard, June 30). He said this against the background of recent controversies, particularly over the allocation of 2G spectrum for telecom and the allotment of the Krishna-Godavari (K-G) gas fields to private developers, in which the CAG examined and commented on certain policy matters.
The prime minister’s statement was not entirely correct. There are constitutional provisions that deal with the CAG’s role in policy and they are of great significance today. I am not discussing here the veracity or otherwise of the CAG’s findings on the issues but only whether it has the power under the Constitution to say that the receipts in the Consolidated Fund of India would have been higher by certain amounts if a particular policy was followed.
The CAG is an exalted post created by the Constitution. Articles 148 to 151 deal with his appointment, functions and reporting system. Under Article 148 (5) the “administrative power of the CAG shall be such as may be prescribed by rules made by the President after consultation with the CAG.” Accordingly the CAG’s (Duties, Powers and Conditions of Service) Act 1971 was passed by Parliament.
For receipts, the crucial section is Section 16 that reads thus: “It shall be the duty of the CAG to audit all receipts which are payable into the Consolidated Fund of India and of each State and each Union Territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed (italics mine) to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed ....”
Notice that Section 16 has two portions. The first portion (in italics) gives the CAG the power to satisfy himself that the rules and procedures are designed to get proper receipts. That is to say, he has the power to discuss the design of the rules and procedures. That involves policy. He can say, for example, that it would have been a better procedure to sell something by auction, since in that case the receipts to the Consolidated Fund of India would have been much higher. The second part of the section refers to ensuring that procedures “are being duly observed”. This portion is for ensuring compliance.
So, the first part of Section 16 entitles the CAG to examine the merit of the existing rule and procedures and say that an alternative procedure (system) would lead to better and a more just collection of receipts. This type of approach is known in audit circles as “system audit”. It has been done for more than three decades.
In fact, this is not the first time the CAG has suggested policy changes. In the early nineties, the extant rule in Customs was to give a refund if it was due. The CAG pointed out that this rule might lead to unjust enrichment of the recipient of the refund since he would have most probably already passed on the burden of higher tax to the buyer. At the insistence of the CAG and the Public Accounts Committee, the law was changed. Section 27 was amended by incorporating a proviso (with effect from December 23, 1991) by the Section 2 of the Customs Amendment Act, 1991. Similarly laws on excise and service tax have amended. Neither the finance minister at the time nor Parliament took exception to the change in the law, which occurred at the behest of the CAG. So it is quite clear that on the receipts side the law is certain that CAG is authorised to delve into and suggest changes in policy (rules and procedures) and he has been doing so for long enough.
On the expenditure side, the relevant section is Section 13 that reads thus: “It shall be the duty of CAG to audit all expenditure from the Consolidated Fund of India and of each state...and to ascertain whether the monies shown in the accounts as having been disbursed were legally available and applicable to the service or purpose to which they have been applied or charged and whether the expenditure conforms to the authority which governs it.” This gives the CAG power to audit and to verify if the expenditure is according to the Budget allocation. If the CAG finds wasteful expenditure he is entitled to point it out, since it is against the implementation of the Budget allocation. It is not a policy matter.
The conclusion is that the Constitution does definitely provide the CAG with a clear mandate to delve into policy in respect of receipts but not in respect of expenditure. The 2G issue and the K-G gas field allotment issue concern matters of receipt. So it was well within the CAG’s mandate to say that if the policy was different, the receipts would have been so many thousands of crores more.
But if the government strongly feels that the Constitution does not give such a mandate, then the best course would be to make a Presidential Reference to the Supreme Court under Article 143 of the Constitution to settle the issue once and for all. It would be better than publicly debunking the Constitutional post of the CAG, which does little good to public morale. Above all, Article 38 (1) of the Constitution (Directive Principles) enshrines the provision that the state should promote the welfare of the people. The CAG’s reports on 2G and K-G have exactly done that.
The author is former member, Central Board of Excise & Customs. He can be reached at smukher2000@yahoo.com
