Catch them with hands in the till; CAG reports are post-mortems  

May 9, 2012

The CAG is an excellent weapon. Unfortunately, the CAG reports are all post-mortems. We need something that may be described as “concurrent audit” of government deals, a detective’s review of the proposal at the point that the final decision is to be made

R Vijayaraghavan

First, it was the Mundhra scandal, an affair so small that Raja and other scam kings of today won't even sniff at it. The details are not worth recalling but the scandal was good for newly Independent India.

It warned the country that corruption is an ever-present danger; and the government's response showed honesty and integrity were still alive in India. TT Krishnamachari, one of the most brilliant financial minds the country has produced, was the finance minister. He resigned when the scandal broke and it was clear that the finance ministry was involved.

Then came Bofors, which sent out exactly the opposite message. It was good news for crooks and bad news for the country. The message was that the Congress party and its government would go as far as necessary to stonewall investigations and protect the guilty, the obvious ones and the shadowy figures in the far background.

Bofors announced the code word-Open Sesame-to open and loot Ali Baba's cave. It told the crooked that it was open season to raid the treasury.

Fast forward to 2010 AD. The Comptroller and Auditor General (CAG) announced that the country has suffered a probable loss of Rs176 lakh crore in the distribution of 2G (second generation) spectrum licences.  Even today, I cannot, off the top of my head, say how many zeroes follow the 176 in that number.

Bofors was penny ante stuff. The mind boggles at modern numbers. Add to this the projected loss in Coalgate and we get a bigger lot of zeroes which I have to count on my fingers.

Add the loan loaded on to the innocent Air India in order ensure windfall profits for a few aviation entrepreneurs, the land scams in Maharashtra, land-grab arrests in Tamil Nadu, illegal iron more mining in Andhra Pradesh and Karnataka, et cetera, et cetera, et cetera as the King of Siam keeps saying in "The King and I" and we get a figure that is one-third of the way to the googol.

A googol is 10 to the power of 100 or 1 followed by 100 zeroes. It was invented by Edward Kasner, a mathematician of the early 20th century, and the name was given by his nine-year-old nephew. Kasner used it to illustrate the difference between an unimaginably large number and infinity. It is useful when comparing with other very large quantities such as the number of subatomic particles in the visible universe or the number of hypothetically possible chess moves.

Googol can be used to indicate the total amount of graft and black money that can be siphoned off from the Indian economy. In 2062, fifty years from now (is this an underestimate?) this amount will total Rs Googol.

Any way of stopping this or slowing down the juggernaut? You, me and the man in the street have plenty of ideas which have to be developed and refined. Let me put one forward for consideration.

The CAG is an excellent weapon. Unfortunately, the CAG reports are all post-mortems. The CAG looks at government operations long after they have been completed. Taking the 2G spectrum case as an example, a lot of people knew that something illegal was going on during the process of allocating the licences but they did not have documentary proof to pin down the illegalities or estimate the amount of black money was created. Only the CAG report could surgically cut open the whole operation, with Raja conducting the full orchestra of the government, and display the anatomy of India's biggest scam to the public.

Some culprits have been caught but many more have escaped. The money was gone, hidden under plants at the bottom of the garden or sitting in bank accounts abroad or financing the trade in weapons and drugs; solely because the CAG report was only a post-mortem.

We need some mechanism which catches the scamsters when they are going about their dirty work; like catching a thief in the act of breaking open the safe in your house. We need something that may be described as "concurrent audit" of government deals, a detective's review of the proposal at the point that the final decision is to be made.

Consider the example of Air India. Air India got into trouble because Praful Patel wanted to buy 111 planes. Everything would have been fine if, as prudential financial norms dictated, a proper plan to raise the funds for the aircraft had been formulated. The funds should have come from a mix of equity, retained earnings, loans and leases.

Instead, Air India was loaded with an unbearable loan burden of Rs38,000 crore and the proposal went through on the nod, right past even the Cabinet. If we had a system of concurrent audit, the detective review would have cried 'halt' and Air India would be healthy now. Prevention is better than cure?

(R Vijayaraghavan has been a professional journalist for more than four decades, specialising in finance, business and politics. He conceived and helped to launch Business Line, the financial daily of The Hindu group. He can be contacted at [email protected].)