NOT JUST AN ACCOUNTANT

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Copyright © Vinod Rai 2014

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I dedicate this endeavour to my parents—to my mother for giving us roots to
keep us firmly grounded, and to my dad for teaching us how to fly.
Our education was her only worldly wealth, and he was my first and only
hero.
 CONTENTS
Foreword
Preface

THE JOURNEY
1. Dimapur to Delhi
2. The Role of Audit
3. Media Policy
4. The CBI

FOLLIES
5. First Come, (Not) First Served: The 2G Saga
6. Sound & Fury: The PAC & JPC Saga
7. The Punjabi Wedding: Commonwealth Games 2010
8. Coal That Turned to Gold: Mine Block Allotments
9. A Slippery Deal: Gas Exploration
10. Off Course: Civil Aviation

COURSE CORRECTION
11. Excellence, Accountability & Probity
The Pursuit of Excellence
The Role of Accountability
The Role of Probity and Ethics in Public Life
Good Governance
Appendices
Acknowledgements
Index
 FOREWORD

When I received Not Just an Accountant from Vinod Rai, I wondered what I
could share with readers. On going through the manuscript—which deals
with vital issues like transparency, accountability and ethics—I was
convinced that our youth had to be sensitized about these principles, and the
unique quality of righteousness—righteousness in the heart. For, as I have
often said, where there is righteousness in the heart, there is beauty in
character.
Righteousness can be injected by only three great people up to the age of
seventeen—a father and a mother in a spiritual environment, and a good
primary school teacher. Can governments and institutions create good human
beings? The answer I arrive at is: no, not at all. The process has to start in
homes and schools.
I find that in countries across the globe a new paradigm is emerging—
that of transparency in functioning, not only within the government but also
in private institutions and civil society, with morality and righteousness being
fundamental principles. Not Just an Accountant draws attention to these
principles and emphasizes the importance of ethical governance in our
country. This has to be the long-term goal of all nations.
My conviction is that to weave the moral fabric of society, we need to
target energetic youth in the country. Democracy is a great gift to the people
of India. Our thoughts and actions should ensure that we use our most
creative efforts and dynamism to promote rapid economic growth. Vinod Rai
has discussed such essential issues of governance which will make our
economic growth sustainable in the long term.
Let us work to make India a great nation, with righteousness in the heart
and the pursuit of excellence in our endeavours.
Dr A.P.J. ABDUL KALAM
Former President of India
August 2014
 PREFACE

Benjamin Franklin once said, ‘If you would not be forgotten as soon as you
are dead, either write something worth reading or do something worth
writing.’
I do not think I have done anything worthwhile for others to write. So
the next best option was that I consider penning my thoughts and
experiences, which may be worthwhile for some to read. The decision was
taken for no other reason but for posterity to know something about the
accountability of the government towards its people. There was a moment of
hesitation though, when it struck me that my words would attract the usual
vituperative utterances from those who have the irresistible urge to be in
media light. But then I found that Benjamin Franklin had also said, ‘Anyone
can criticize, condemn and complain…and most fools do.’
It was then that I decided to persevere, regardless of the opportunity
being provided to such people. In pursuit of that decision of mine, I am going
to narrate to you a story—the story of my life, a story of how events and
people touched me in myriad, simple ways, releasing immense energies and
inspiration which I did not know existed in me. I hope my thoughts will
resonate with the people who read this book and wonder what holds them
back from doing only that much—not too much—only that much which
society expects of them. It is not a tall order. Each one of us has it in him or
her to do it. Maybe your time to seize this opportunity is yet to come. I am
writing this for thousands of young men and women who see it all happen;
have the resolve and inspiration to meet the challenge, but may not rise to the
occasion when the opportunity arises and so, sadly, may see it pass. I would,
therefore, alert them to keep their radar fully functional because there is no
advance warning. Life gives only one chance—don’t fritter it away.
 Hence, I present to you this book. It is not about creating a sensation or
revealing mysteries. It is not about running down anyone or deriding the
administration. It is not about finding fault and paraphrasing audit reports of
the comptroller and auditor general (CAG).
This is a book about accountability. It is about transparency. It is about
that vital quality in society of which we seem to have created a huge deficit.
It is about ethics. It is about how a nation—which prides itself on the
greatness of Ashoka, the nobility of Akbar, the compassion of Buddha and
the courage of Gandhi—seems to have lost its moorings. It is about how we
are now mired in a whirlpool of decadence and malevolence in society,
opacity in administration and, above all, a total lack of leadership in the
higher echelons. The book is about how we have renounced excellence and
settled for mediocrity as our guiding beacon. The book seeks to reinvigorate
among us, especially GenNext, the spirit and quality for striving for the very
best in every pursuit of life. It seeks to delve deep into the conscience of the
reader, provoking him into seeking a higher order of accountability from
institutions, so that the vision of the framers of the Constitution is fulfilled. It
is all about our responsibility to bequeath a system to the coming generation
which not only strives for excellence but is also built on an edifice of probity,
transparency and accountability.
We are a proud nation with an ambition to see the country become a
superpower in all spheres—economic, scientific, military, sports—and we
wish to assume leadership in international affairs. In an endeavour to look at
some of these areas, I have drawn on five case studies based on the audits
done by the officers of the Indian audit and accounts department. I have
relied on them as no study of the financial dealings of the state can be more
authentic than a scrutiny of these reports. The facts in the audit reports are
unimpeachable. The methodology is transparent, and the inferences
unassailable. We may certainly differ on the conclusions derived from these
inferences, but that is a matter of perspective.
I have no regrets whatsoever about the reports put out by the
department. We do not have to be contrite about anything that was stated in
them. In fact, I am proud of having had an opportunity to be part of a
professionally sound and totally apolitical team—a team which has
commanded respect and approbation all over the globe, a team with
impeccable professional credentials, whose findings resonate well with
objective commentators in the country.
 Audits were done by specialists in different areas of administration.
Their product, a labour of untiring effort, is there for all to see. In any other
dispensation, these professionals would have been applauded. In ours, they
have been called ‘untrained’. They deserve better. Maybe they had to pay for
the direction and guidance provided to them by me. But I take solace from
the thought that they are trained auditors and their audit capabilities have
been honed to such perfection that no criticism or pressure from whatever
source will detract them from the assigned task.
Till a while ago, apologists for the government were crying themselves
hoarse, putting a substantial part of the blame, if not all, on audit—nay, the
CAG—for the slowdown in economic growth and policy paralysis. They
unabashedly besmirched the robustness of the Indian economy, painting it as
so fragile that a couple of audit reports would do it irreparable damage. They
did not realize that the public did not believe them. They failed to see that
their explanation was an alibi for non-performance. It was a bogey. They did
not realize that, through their actions, they only underscored those common
platitudes—the worst wheel in the cart makes the most noise, or the empty
vessel is the loudest. The noise was made by those who realized their ways,
and hence their days, were over.
In a parliamentary democracy, a government can be only as good as we
make it. If the government falters, the folly is that of the ultimate stakeholder:
‘we, the people’. Hence, if things went wrong for the country and the
economy, it was probably—in fact, most definitely—because we permitted it
to drift, safe as we were in our own insular environment, totally divorced
from harsh realities. This was a dangerous trend, as our appetite and
threshold to accommodate malfeasance and inefficiency was increasing with
every general election that we endured.
In that context, the one incident that really stirred our conscience—the
proverbial last straw on the camel’s back—was the horrific bus incident in
New Delhi involving the young lady who lost her life in December 2012. Her
brave struggle against the perpetrators of the crime and her ultimate sacrifice
awakened the somnolent conscience of a nation that had lost the capacity to
think for itself. This stirring was provoked not only by the clarion call of a
frail old man but also the despair of millions of young men and women who
spontaneously descended on the streets of Jantar Mantar and India Gate to
register their protest against and concern about the way in which the society
and the nation were headed. And what did we do? We read the signals wrong
as usual—we water-cannoned them in the month of December. This was the
psyche which, by then, revelled in shooting the messenger. It highlighted the
complacency of a nation which had completely misread the Mahatma’s
message of ‘see no evil, hear no evil, speak no evil’. It is this paradigm that I
wish to address in the book. Should we just shut our eyes at the wrongdoing
and blindly shoot the messenger who uncovers the wrong? Has this attitude
become the soul of the nation?
Through some of the case studies that I have presented, I propose to
familiarize the readers about the message that the messenger was trying to
convey. If we had read it correctly, the economy would have become more
robust, the nation better respected, and we, the people, would not have
suffered from the mood of despondency that envelopes us. We need not focus
on the delinquents, as the law will deal with them. We need to invest our
energies on how to ensure that such aberrations do not recur; that systems
and, more importantly, the people who operate the systems, work towards
professional excellence as an end.
Today, for India, development is not an option—it is a necessity. The
lives and livelihoods of far too many people are at stake. Development cannot
be sustainable unless it is premised on an edifice of transparency,
accountability and ethical governance. Government spending needs to be
done wisely. The nation’s natural resources are finite and have to be
exploited to achieve the twin objectives of people’s welfare and the
mobilization of resources. The moot point is that it is not the maximization of
resources that the CAG was talking about, but only the mobilization. Thus
while a developing country—or for that matter, any country—has to strive to
fulfil the welfare needs of its people, its schemes and programmes directed
towards such fulfilment can be successful only if it can mobilize resources
effectively. And as these resources are generally exploited by a private
partner, it is logical to exercise robust economic principles.
The issues that audit dwelt upon were of taking remedial action at the
appropriate time, for which not only audit but various other agencies such as
citizens’ groups, the media and non-governmental organizations were raising
alarm signals. The nation was crying out for a leader to emerge, take control
and ensure that there were no further slippages. Separately, there is need for
the private party partners to introspect whether entities who are in business
for the long haul need to be rent seekers or need to seek only maximization of
normal profit.
 The case studies chosen are across a spectrum that portray a diversity in
failures.
The issuance of licenses for the second generation spectrum allotment
underscored procedural irregularities that were intentionally committed. Even
though the alarm bells were ringing loud and clear within and outside the
government, no one had the courage to stop the entire process from being
hijacked. Goal posts were being shifted, and every protesting department of
the government was told to stay out, with their advice being labelled as ‘out
of context’. The government was certainly not caught napping, as the design
became apparent as early as January 2006 itself, when the terms of reference
were framed for the group of ministers and spectrum pricing was sought to be
kept out of its ambit. Again, when no meeting of the group of ministers was
allowed to take place by the then minister for telecommunications, the prime
minister’s office silently acquiesced. It was only after a revision of the terms
in December 2006 that the group of ministers met.
The conduct of the Commonwealth Games was a tale of how a flawed
model of delivery of the games was designed, despite the country having seen
a different model being successful for the 1982 Asian Games. This was a
clear failure of leadership; a failure of the agencies in government, who were
not working as a cohesive whole; a failure of those entrusted with the conduct
of the games, who did not follow the well-trodden and accepted path.
The coal story is a classic example of how those entrusted with
safeguarding the nation’s natural resources allowed it to be frittered away to
agencies who were neither capable of exploiting the resources nor had the
intent to do so. In the process, they lost the licenses which were later
cancelled by the court. Power generation—the avowed objective—fell by the
wayside and, finally, it was the economy that suffered by being deprived of
that critical input which would have been the engine for growth.
The exploration of hydrocarbon is a story of a model of public-private
partnerships which does not, till this day, inspire trust or confidence in either
the production sharing contract (which regulates the partnership), or in the
actions of the government or the operator. Furthermore, it does not assure us
that the nation’s resources are indeed being exploited in the best interests of
the nation.
The civil aviation story is a tragic tale of an airline which was once the
pride of the nation—its logo conveying warm and pleasant dreams of a
palace in the sky. It has now come to such a sorry pass that the salaries of its
employees were delayed for over five months. It is a saga in which
generations of ministers and CEOs could not control the downslide, and the
airline continues to be a parasite on the national exchequer.
In the last few years, the country has also been held captive by
‘cronyism’. Cronyism extends to handing out contracts and rigging bids for
the undeserving, which has done untold harm to the economy. Agencies with
inadequate domain knowledge have cornered contracts and national finite
resources. They have muscled their way into major infrastructure projects,
thereby denying the meritorious their legitimate due. This has been a direct
consequence of opacity in government procedures, which has killed
competition and the efficiency of the market system. A number of credible
voices have been raised against the cancerous spread of this phenomenon, but
remedial measures are being sacrificed at the altar of the compulsions of
coalition politics.
If public accountability is indeed the essence of democracy, why is it
that we have not been able to enforce such accountability? We repeat the
same mistakes. GenNext is fed-up and inquiring whether we continue to err
by design. Also, why do we allow less than one per cent of the population of
the country, comprising elected and selected ‘public servants’, to make
themselves rulers, while the rest of the ninety-nine per cent remain ruled? We
will be called upon to answer these queries.
I hope that ‘jan sunwai’ will soon take its toll on the wrongdoers, and
that ultimately, transparency, probity and good governance will indeed be
brought about by a determined people.
And hopefully, in my lifetime itself.
THE JOURNEY
 1

DIMAPUR TO DELHI

Five IAS [Indian Administrative Service] probationers reported to Dimapur railway station
today. Since the state government has not agreed to accept them in the Nagaland cadre, they
have been directed to go back and report to the department of personnel, government of India.

his was the welcome message received by five officers of the 1972
batch of the IAS who had been allotted the Nagaland cadre. They were in
Dimapur, en route to Kohima, where they were to report for the district
training phase of their two-year probationary period.
The cadre allotment process is architectured on the principle that half of
the allottees to any cadre are from the state itself (referred to as ‘insiders’)
and the other half are the so-called ‘outsiders’, allotted on a very complex
‘roster’ principle, which is understood only by the mandarins of the
department of personnel. They can operate it to suit any argument and can
out-argue any inconvenient allotment. That year, Nagaland had no insiders
among the successful candidates; all five of us were from the outsider
category.
The government of Nagaland, a Congress-led ministry with Hokishe
Sema as chief minister, was of the view that the state, which had only three
districts at that time, could accommodate only two or three officers in a
batch. There was a flurry of correspondence on this issue between the state
and central governments, with both sides trotting out learned arguments in
favour of their respective views. Neither government appeared to relent. The
government of India seemed to believe that as the federal government and the
cadre regulating authority of the All India Services, its will should prevail.
The government of Nagaland cited practical problems and did not acquiesce
to the central government.
The five probationers—R.S. Pandey, A.P. Sharma, Ravi Dhingra, N.G.
Laloo and I—had been privy to this debate as all correspondence between the
two governments was copied to us. Till the day we were to leave the academy
for our respective cadres, copies of correspondence available with us
indicated that both the state and central governments were sticking to their
adversarial positions. We were a confused lot, understandably.
On behalf of all five, I had mustered up the courage to seek advice from
the director of the academy, D.D. Sathe, who offered it with alacrity: ‘The
central government has allotted all five of you to Nagaland.
The state has no choice in the process. They will have to accept all of
you. So, proceed to the state capital and report to the chief secretary.’
Unfamiliar with the ways of bureaucracy as we were, we accepted this
advice as gospel and proceeded to Kohima, Nagaland’s capital and the seat of
the state government. Since the academy had informed the state government
of the date and time of our arrival, we hoped to be met by at least an official
vehicle to take us to Kohima, a distance of seventy-six kilometres by road
from Dimapur, the railhead. We were indeed met.
As we disembarked from the train at Dimapur, an official came up to us
to seek confirmation that we were the five IAS officers coming from the
Mussoorie Academy, and allotted to the Nagaland cadre. On hearing that we
were, he handed each one of us a sealed envelope. With some degree of
expectancy (a welcome message?), we prised open the envelopes. In each of
them was a copy of a wireless message sent by the state government to the
central government—the text of the telegram is what I have reproduced at the
beginning of this chapter. We turned to the officer who had handed us the
message. He had vanished; he had simply melted into the crowds on the
platform. We searched for anyone who might even remotely be connected to
the government, going to the extent of trying to locate any government
vehicle in the parking lot which could take us to the Circuit House, but all to
no avail.
What were we to do? Well, we had strength in numbers, which kept our
morale high and the spirit of adventure alive. And, since we had been advised
to report to the chief secretary, we decided to continue our journey to the
state capital. But first, we headed to the Circuit House for a well-deserved
bath and some food. Things improved a tad by the afternoon. Binod Kumar (a
1970 batch officer, posted as a sub-divisional officer at Wokha) and T.K.K.
Nair (a 1971 batch officer, posted at Dimapur) came to look us up. They were
encouraging, and advised us to head to Kohima. Binod Kumar even offered
to take us to Kohima in his official vehicle the next morning. With such
support from our senior colleagues, we were reassured.
We set off towards Kohima the following morning. Reaching there, we
met with the chief secretary, H. Zopianga, an exceedingly gentle and warm
person. He took pains to explain to us the government’s stance. Though he
was apologetic about, and sad at the treatment being meted out to us, he was
duty bound, he said, as the chief minister had decided not to permit any one
of us to join on a matter of principle.
We were in no-man’s land, figuratively and, in fact, even literally. We
had been allotted a cadre which refused to accept us, were effectively
unemployed and without pay, far from home, dependent on the kindness of
the inspector general of police, who arranged a roof over our heads and food
to keep us going in the police mess. This state of uncertainty lasted fifty-three
days. We were then informed that Prime Minister Indira Gandhi had
intervened, and advised the chief minister to accept us for the training period,
after which three of us five would be reallotted to other cadres. A remarkable
solution, though one that can be termed as being inexplicable too—because
the training and district experience in Nagaland was rather inadequate; those
reallocated to other cadres would have negligible training in revenue
administration. After all, the tribal areas of Nagaland had no land revenue,
and the Code of Criminal Procedure (CrPC) did not apply to the ‘inner line’
area. There was no question of judicial training either.
These were not issues that mattered in any case because we would now
have a job to do, an office to go to and, hopefully, a pay packet to receive.
R.S. Pandey and I were allotted to the Tuensang district for training.
Back then, Nagaland had only three districts and Tuensang was deepest in the
interiors—beautiful but not with many modern amenities. Our deputy
commissioner, John F. Halliday, a handsome Mizo officer and a man of few
words, was a quintessential ‘bada saheb’ who was initially in the Indian
Frontier Administration Service (IFAS). He told us to quickly familiarize
ourselves with the local lingo, Nagamese, get to know the place and acquaint
ourselves with the administration. Basically, he meant, keep off me. His wife
turned out to be an excellent host and a remarkable cook.
A part of Tuensang district then, and now an independent district, is the
area of Mon. It is inhabited by the Konyak tribe. The tribe still follows the
tradition of being led by the ‘angh’, who is the hereditary village chieftain.
The angh’s wife is known as the ‘chatai’. The Konyaks tattoo their faces and
hands, and hold on to an old belief that only dogs have white teeth; so they
paint their teeth black. The Konyaks practised headhunting till it was banned
by the government in the 1950s. Young Konyaks who offered enemy heads
to the angh were rewarded with brass replicas, which they’d weave into a
necklace. These necklaces with brass human-head beads would be worn
proudly by the menfolk.

A Collection of Skulls in the Angh’s House

Pandey and I visited a Konyak village and were greeted by the angh. He
carried a muzzle-loading single-barrel gun and was not keen on being
photographed as he was not in the best of health that day and felt his photo
would not do him justice. His wife, the chatai, took us to their home, which
was a long bamboo hut with a thatched roof. In the Spartan living room, we
were greeted with three shelves with rows and rows of familiar looking
decorations—human skulls—thirty-seven of them proudly displayed. The
chatai explained that this was their family heirloom—the maximum number
of heads in these parts—a unique collection-cum-trophy indeed! The
traditional animal in these parts is a mithun—a cross between a water buffalo
and a cow. According to tribal law, murder can be compounded if the widow
of the murdered person is compensated with a mithun.
Pandey and I spent an exceedingly interesting and exciting nine months
in Tuensang. Food was limited. It was rumoured that if vegetables such as
eggplants or okra ever came into the marketplace, a partial holiday would be
declared so that families could do their grocery shopping. After completing
our district attachment, we returned to Mussoorie and the academy for the
final phase of our training.
In early 1974, while we five probationers were undergoing secretariat
training in Kohima, we heard of a most unfortunate incident—the deputy
commissioner of Zunheboto, K.K. Gupta, an IAS officer of the 1969 batch,
was ambushed and killed while on an official tour. Gupta had been sitting in
the front seat of the jeep, between the driver and the commanding officer of
the Assam rifles battalion. The bullet had hit Gupta only, and that too in the
chest; his death had probably been instantaneous. The news spread like
wildfire in the town. Late afternoon, I decided to drive down to Zunheboto.
The commissioner, S.C. Dev, lent me his jeep and driver. I initially told the
driver that we were headed for Phek, another town in the same direction.
However, when the road forked and we took the lane to Zunheboto, the driver
showed reluctance, having heard of the incident; besides, night had already
fallen. He required some persuasion before we could carry on. We reached
Zunheboto late at night. The next morning, the chief secretary and the
commissioner helicoptered into Zunheboto and arranged to evacuate the body
and the family to Delhi in an Indian Air Force (IAF) aircraft, with me
accompanying them. This was probably the first incident when the
underground had targeted an IAS officer.

KERALA

When the Trivandrum Mail steamed into Trivandrum Central Station on 21

July 1974, I realized that I was attempting to find myself a cadre yet again in
my fledgling two-year career in the coveted IAS. I had joined with dreams of
rapidly climbing the rungs, and rising to the post of a district magistrate in a
well-known district. Yet, here I was, unable to find a state that would accept
my services. And what was my fault? None that I could think of.
Three of us from the 1972 batch had been withdrawn from Nagaland,
after having ostensibly completed our probation. R.S. Pandey and N.G. Laloo
had been retained in Nagaland, A.P. Sharma had been reallotted to Manipur,
Ravi Dhingra to Himachal Pradesh, and I had been reallotted to Kerala. After
a tiring three-day journey from my hometown of Lucknow via Madras, I had
reached Trivandrum. The next morning, I sought an appointment with the
chief secretary and was promptly ushered into the room of K.P.K. Menon, a
former air force officer. I was a trifle baffled to find a glass of pale yellow
liquid on Menon’s table. This was at about 11 a.m. Coming from Tuensang in
Nagaland, where the redoubtable John F. Halliday started his early lunch with
a glass of beer, I had not expected to witness the same trend in distant Kerala.
It was only after spending many days in the state that I came to identify the
contents of that glass. People of Kerala prefer to boil their drinking water (to
make it safe for consumption), and to add some flavour to it, they heat the
water with cumin seeds (jeera) or dried ginger which gives it that yellowish
tint. In fact, very soon I became partial to this ‘coloured’ water.
K.P.K. Menon was intrigued by my credentials. I had supposedly
completed my two-year probation and was ready for a regular posting; yet, as
a sub-divisional magistrate, I had not the foggiest idea of Kerala’s geography,
let alone its language and laws of the land. Menon could not understand how
I had been reallocated to Kerala from Nagaland, that too without my
requesting for a change. Quite amazed by the situation, he exclaimed loudly
in his clipped accent: ‘Oh, oh! You are going to be fairly indigestible material
for us!’ This was a rather strange interpretation of my abilities. Nevertheless,
I mustered some courage and offered a solution: ‘Sir, please give me an
attachment with any district collector for two months and I will make myself
digestible.’ If digestibility was indeed going to be the criterion for getting
regular employment, I had to couch my employability in those terms. This
suggestion seemed to appeal to Menon. He arranged a two-month attachment
with K. Srinivasan, then the district collector (DC) of Cannanore (now
Kannur).
With this major feather in my cap, I spoke to a few friends posted in
Trivandrum. On learning that I was to move to Cannanore, they had a hearty
laugh. The cause for their amusement remained a mystery till Cannanore’s
location on the map was made clear to me. While the government of India
had posted me to the region farthest from Nagaland, the government of
Kerala thought it best to send me even farther from the seat of government, to
the district furthest from Trivandrum.
In September, after my two-month stint in Cannanore—during which
John Mathai, the sub-collector of Tellicherry (now Thalassery), taught me the
basics of revenue administration (especially during our long inspection trips
to Kasaragod and Taliparamba); K.M. Chandrasekhar, who had been posted
as the project officer of the Small Farmers Development Agency (SFDA),
trained me in development administration; M.K. Ravindranathan, the
additional district magistrate (ADM), coached me in general administration;
and K. Srinivasan schooled me in Malayalam and basic survival values—I
was posted to Thrissur (Trichur in those days). Located roughly in the centre
of Kerala, this compact, semi-urban, Malayali cultural capital has now
become my second home. I was first posted here as the assistant collector,
then the project officer of the SFDA (the precursor of the present District
Rural Development Agency, DRDA) and later, the DC.

THRISSUR

K.S. Nair was the DC of Thrissur when I arrived there from Cannanore. An
officer of the state revenue service, he was thorough in his approach, popular
in the district and very affectionate towards me. In fact, when I wanted to
shift from the rest house to the residence earmarked for the assistant
collector, he would not allow me to do so on a Tuesday, ostensibly because it
was not auspicious. I earned my spurs in this job and slowly gained
confidence in dealing with the public in Malayalam and managing the
officials. One of my achievements was the successful organization of a ‘gana-
mela’ programme, an entertainment show to collect funds for flood relief and
other victims; a part of the fund collected was utilized to build an indoor
stadium.
My stint in Thrissur as an assistant collector came to a sudden end a
year-and-a-half later, when I was peremptorily removed one fine morning
from the post. I learnt that my actions with respect to a church belonging to
the Jacobite Syrian Christian community1 were counter to the instructions
which appeared to have been issued by the then home minister, K.
Karunakaran, to my DC, but which were probably never conveyed to me. The
move was within the district and to the SFDA, an assignment that I held for
about two years and view as amongst the best in my career.
A word about the politics of Thrissur. K. Karunakaran, the then home
minister (and later the chief minister), a devout Congressman, belonged to
this district. So did the chief minister at that point, C. Achutha Menon, an
equally devout Communist Party of India (CPI) member. They were
distinctly different personalities. Karunakaran was loquacious and outspoken,
and would visit the district at least once a week, whereas Menon had an
intellectual bearing, hardly spoke and would come to the district once in
about three months. Karunakaran was an ardent devotee of Lord
Guruvayoorappan, the Sree Krishna temple in Guruvayoor, and would,
without fail, visit the temple on the first day of every Malayalam calendar
month. He was very good towards officers and, if they gained his trust with
their work, would back them to the hilt.
The contribution of Karunakaran to the development of Thrissur district
has been remarkable. He was a strong administrator who believed in
development. He was fond of travelling very fast on the road—and this is not
the most advisable thing to do on the lanes and bylanes of Kerala. Once,
while travelling from Thrissur to Kochi, when despite his repeated goading,
the driver did not speed up, Karunakaran sarcastically told him to give way to
the bullock cart that was honking behind them and wanted to overtake their
car. That’s when the speedometer showed 100 kmph. But then, for
Karunakaran, anything less than 110 kmph was not acceptable. He lived life
in the fast lane.

TRIVANDRUM

My initiation to a secretariat posting in Trivandrum was when I was made the

deputy secretary in the revenue department in 1977. It was also here that I got
to witness, rather intimately, the functioning of the bureaucracy. This was
when the state was reeling under a severe monsoon; there was loss to life,
property and crops. As is customary in such situations, a damage assessment
team came from the government of India. Usually these teams are looked
after very well as they have the power to recommend additional financial
assistance to the state. It was my responsibility to prepare the memorandum
for financial aid required to be presented to the central government through
this team and accompany the squad when it toured the flood-affected areas.
The visit went off well, with the team and its leader conveying their
appreciation of our arrangements. After their departure, on my return to
Trivandrum, S. Padmakumar (the secretary of the revenue department) and I
went on to brief the minister, Baby John. When the minister conveyed his
satisfaction, I was amazed to hear Padmakumar tell him, ‘At least give us a
good treat for a job well done!’ The minister responded by putting his hand in
his kurta (jubba, as they say in Malayalam) and pulling out a fistful of
crushed currency notes. No sooner had he put the money on the table, than
Padmakumar grabbed and counted the notes: 700. He was satisfied; it would
buy a meal for two. Padmakumar and I drove off to Mascot Hotel, the only
decent eating place in Trivandrum back then. After a hearty meal, when the
bill came, Padmakumar tipped the waiter and told the manager to send the
bill to his house. I was surprised, since he had the cash he needed.
Padmakumar’s justification, delivered in an elementary-my-dear-Watson
style, was: ‘You see, Vinod, when this bill goes home my wife will pay it. In
the process my ways and means position has gone up by 700!’
I did not survive very long in the secretariat. The chief minister, A.K.
Antony, was prevailed upon by one of his political seniors, Meloth Narayan
Nambiar, to post me to the Kerala State Cooperative Marketing Federation,
of which Meloth was the chairman. I was back in Calicut, in the Malabar area
of Kerala.
The marketing federation was an excellent opportunity for me to learn
about trade in spices. We procured pepper, cardamom, dried ginger, turmeric
and cloves, and exported them to different countries. The erstwhile USSR
was our largest trading partner, purchasing pepper and cardamom in large
quantities. Besides having very knowledgeable officers within the federation,
such as P.S. Muralidharan Nair, I learnt a great deal about the nuances of the
trade from such stalwarts as Jaysinh V. Mariwala (of M/s Kanji Morarji Pvt
Ltd). He was among the best informed and respected spices traders of those
days, and continues to be a close friend.

The government of Kerala had announced that the Kerala State Cooperative
Marketing Federation would be the state’s monopoly procurer of raw cashew
nuts. The raw cashew so procured would be allotted by the government’s
cashew special officer to cashew processing factories. This was to ensure that
all cashew processing factories got enough raw cashew to process— thereby
providing the labour attached to each factory with gainful employment, and
stalling the monopoly of a handful of factories. The move would also ensure
that all cashew was processed in the state, and not smuggled to neighbouring
Tamil Nadu or Karnataka, where Kerala cashew processors had set up
factories to reap the benefits of cheaper labour.
Expectedly, the larger cashew factories were up in arms; their freedom
had been curtailed. They went to court against the government’s orders, and
prolonged litigation commenced. My batchmate Gopal Pillai was the cashew
special officer; he was a stickler for norms, and both of us had a pathological
dislike for misplaced political pressure. He was in perennial chase of lorries
smuggling cashew to neighbouring states, and quite enjoyed the task. On one
such occasion, he caught a lorry load, and after confiscating it, promptly got
it sent to our godown for allotment to a particular factory. Not to be
outwitted, the lorry owner pressurized the minister, concocted a case of
mistaken facts, and accused us of overenthusiasm. The minister started
searching for Gopal who, by then, had made himself scarce—the age of
mobile phones was still to come.
The minister did the next best thing—he summoned me and told me to
release the lorry. However, since he was not the minister of my department, I
refused to budge. Besides, there was a written order for confiscation, and I
could not release a lorry on verbal instructions. The minister was livid. Here
was an officer, with precisely seven years of service, openly defying him. He
made known his opinion of young IAS officers who were irreverent towards
ministers, and ended by saying, ‘If you do not release that lorry, I will
suspend you.’ Now, such threats did not appeal to the young, still idealistic
and upright officer in me. In chaste Malayalam I retorted, ‘Well, that is not
what you can do to an IAS officer.’ The minister’s eyes grew to the size of
footballs and his jaw dropped open—not welcome signs. I beat a hasty
retreat.
I realized that I had put myself in an unenviable situation. The chief
minister was a CPI leader, and so was this minister. IAS officers were
available a dime a dozen; suspending them was child’s play, and the central
government rarely interceded to remedy the egoistic actions of some state
busybody. Panic was soon getting the better of me. I made my way to the
residence of Baby John who was the cooperation minister, the minister for
my department. He was laid up. Nevertheless, I got an audience with him.
His comment on hearing my account was, ‘You have not done the wisest of
things.’ Wise or otherwise, I left it to him to fix the situation. Poor man.
Despite his state of indisposition, he went to the chief minister’s office post-
haste as he realized that the situation could spell difficulty for me. The
industry minister, I believe, was already there, and was fuming. Thankfully,
with Baby John’s intervention, the problem got sorted, and I survived to tell
the tale.
Back then, politicians had depth of character!

DELHI

My first tenure at the government of India was in 1980, as under-secretary in

the ministry of commerce. I was looking forward to the assignment, having
had some experience of exports and foreign trade in my tenure as the
managing director of the Kerala State Cooperative Marketing Federation,
which had emerged as the largest exporter of spices in the country. My first
day at work in Delhi was 23 June 1980, and by the time I got to Udyog
Bhawan, which houses the offices of the ministry of commerce, news of an
unfortunate aircrash involving Indira Gandhi’s younger son, Sanjay Gandhi,
was circulating in hushed tones—hushed because the news was unconfirmed;
neither Doordarshan (the government-owned television channel) nor All
India Radio had announced the accident. The news, which was being referred
to as having ‘monumental consequences’, had compelled people to huddle in
groups and discuss the event and its aftereffects. No one, not even the section
officer in charge of administration, had time for this minion (yours truly); not
one person helped him file his ‘joining report’. No business was transacted
that day. The next day, I reported for work again. News broke that V.V. Giri,
a former president of India had passed away. Friends and colleagues advised
me to desist from reporting to office the next day—lest someone else fell
victim!
I learnt my first lesson of working in the ‘ocean’ called the government
of India within a few days of being on the job. The door closer on the door to
my room broke and fell off one late evening. Being somewhat familiar with
government procedures on equipment replacement, however non-functional, I
picked up the broken piece and secured it safely. The next morning, I called
for the person designated to attend to such administrative duties and
requested him to replace the door closer, the broken arm of which I dutifully
handed over. He agreed and stepped out of the room to bounce back within a
minute with a clarification. He announced that as an under-secretary, I was
not entitled to a door closer! I bristled at the import of what he was telling
me; only a month ago, I was a ‘mighty’ managing director who could replace
infinitely more than a mere door closer. However, wiser counsel prevailed,
and I respectfully enquired what my—a lowly under-secretary’s—
entitlements were. And here is what I learnt:

An under-secretary is entitled to a single bay room which he has to share

with his personal assistant. He also shares a telephone with another
under-secretary. He is provided with a window-fitted air cooler in the
summer months. He has half a peon too.
A deputy secretary (the next in the rung) is entitled to a single bay room,
with the personal assistant sitting in another room, and a telephone with
a buzzer. He is also provided with an air cooler in the summer months.
A whole peon is at his disposal.
A director has the same facilities as a deputy secretary, but with a major
qualitative upgrade—he is bequeathed an air conditioner instead of an
air cooler.
It is the joint secretary who really sets the men apart from the boys. A
two-bay room. Two air conditioners. Two personal assistants. Two
peons.
The additional secretary gets just about the same privileges.
The secretary gets a three-bay room. Three air conditioners. Two or
three personal assistants. And I guess whatever else he can demand! The
staff car—the majestic and status-establishing Ambassador—is available
only to the secretaries.

This was the entitlement hierarchy in the government at that time—far more
important than the take-home salary, which in any case, till the award of the
pay commission in 1996, kept government officers well below the poverty
line.
I served with some of the finest officers during this tenure, including
S.P. Agarwal (who offered me basic lessons of survival in the government of
India) and Usha Vohra, a quintessential bureaucrat, absolutely upright. My
other seniors were S. Badrinath and S.P. Shukla, both of whom left for
Geneva, and V.C. Pande, who later became the cabinet secretary. One of the
secretaries was Abid Hussain, a delightful person, warm and forthcoming.
My tenure at the centre certainly prepared me well, and I learnt to ‘survive’ in
Delhi. In April 1985, on the completion of my roughly five-year central
deputation, I returned to Kerala to be posted as the DC of Thrissur.

THRISSUR

As the DC, among the first few things I set about to do was planning the
town. Thrissur’s architecture is unique, having grown around the
Vadakkumnathan Temple. Around the temple runs a circular road, with
arterial roads feeding into it—quite like Connaught Place in New Delhi. This
whole area is called the Swaraj Round.
The round was terribly congested, with a succession of buses halting at
the bus-stand and creating a nightmarish traffic jam. With the support of like-
minded people, we managed to relocate the bus stand; we also created a new
fish and vegetable market away from the round, which substantially eased the
clutter near the temple. The entirely new township, comprising the bus stand
and the market, was named Sakthan Thampuran Nagar, after the most
popular ruler of the Cochin dynasty. Though the relocation of the bus stand
and the market was initially seen as an inconvenience, its benefits far
outweighed the temporary hassles, and the move was hailed by the people as
very progressive.
Having said that, one group dissented—the students from Vimla
College, a popular women’s college in Thrissur, away from the town centre,
who now had to walk an extra 200 yards to catch a link bus. I received a
‘testimonial’ from a student, and I preserve it to this day, as a reminder that
even the best of plans meet opposition. The ‘testimonial’, on a page torn from
a notebook, reads: ‘I have seen a lot of fools in my life, but never a fool like
the present district collector. He has caused so much of difficulty by shifting
the bus-stand. Someone please put some sense in to [sic] him.’ Sadly, I never
got to meet the author of that letter.

Over time, I came to see that people were, for the most part, amenable to
reason if matters were explained transparently. I am reminded of an incident
involving K. Radhakrishnan, a remarkably upright and well-meaning
politician from the Congress, and presently the chairman of the Thrissur
Urban Development Authority. Among other things, he is a nature lover, and
though we were usually on the same page, we had reason to oppose each
other when I was getting the Karunakaran Nambiar Road widened.
Obviously, a few trees which came in the way were to become casualties.
However, Radhakrishnan and team would not let us proceed, and hugged the
trees, Chipko-style. I tried pointing out the absurdity of constructing a road
with a tree right in the middle; I highlighted the fact that this would only be a
traffic hazard and inconvenience commuters. Moreover, the road was a
critical link to decongest major arterial roads and the main sports stadium,
which always had crowds collecting for sporting events. Interestingly, once I
explained the rationale guiding our actions, Radhakrishnan and his team saw
reason. They retreated. In turn, we cooperated with their part of the bargain:
to organize a tree-planting exercise on both sides of the road.
This brings me to the National Games of 1987, awarded to Trivandrum
(now Thiruvananthapuram). The chief minister wanted the swimming events
to be conducted in Thrissur. There was only one minor hitch—Thrissur did
not have an Olympic-size swimming pool! We got to the job of locating land
barely one-and-a-half years before the games. Government land near the
indoor stadium was identified; it was low-lying and had to be filled.
However, filling it up would stop the natural drainage of a cluster of houses,
unless good alternative drainage mechanisms were created. Since the conduct
of the games in Thrissur would be a huge achievement for the ruling
Congress, the Communist Part of India (Marxist) (CPM) chose to dispute the
site selected for the pool. We managed to thwart the protests, but to our ill-
luck, one fine evening, while the pool was being constructed, there was a
heavy downpour. This immediately caused water-logging in those houses in
which we had created only temporary alternate drainage channels. Gopalan, a
CPM party member of the legislative assembly (MLA), led a mob to break
some of the embankments. Thousands of gallons of water poured into the
area dug for the pool, inundating machinery. There was a furore from both
sides.
I merely decided to have photographs taken of the inundated area. I
plastered them in all the local newspapers with the help of a well-meaning
and development-oriented journalist named K. Balakrishnan, so the public
could decide for itself. People, as a rule, respond sensibly if taken into
confidence. There was a groundswell of opinion against the CPM and the
MLA. We never again had trouble constructing the swimming pool, and
managed to ready it in time for the National Games.
Radhakrishnan and Balakrishnan still remain good friends of mine.

During my tenure as the DC of Thrissur, I was faced with a rather

complicated law and order issue in the context of the staging of the play,
Christuvinte Aaram Thirumurivu, roughly translated as ‘The Sixth Wound of
Christ’. This play by the Kerala Sahitya Akademi Award-winning
playwright, P.M. Antony, was based on Nikos Kazantzakis’ historical novel,
translated into English in 1960 as The Last Temptation of Christ. As in The
Last Temptation of Christ, Antony depicted Jesus not as the son of god, but
as a human being subject to fear, doubt and lust; Mary Magdalene was
portrayed as free of blemish.
Antony had first attempted to stage this play in Alleppey (now
Alappuzha) district. But acting on complaints filed by Christian groups, the
police seized the script from the rehearsal camp and arrested the dramatist,
thereby beginning a long struggle and a series of court cases. On account of a
High Court ruling, the play was forced to shift out of Alleppey. The court had
ruled that they could stage it outside Alleppey district.
Thrissur was the next district of choice for staging the play. However,
public opinion was no different in Thrissur. It needs to be emphasized that
roughly 20 per cent of the population of Kerala follows Christianity; this
religious minority is not only well-educated and vocal, but also rich and
influential. The Christians in Thrissur opposed the staging of the play. Priests
and nuns joined demonstrations; fasts were organized; candlelight
processions were held; posters were put up. The bishop of Thrissur, Joseph
Kundukulam, an erudite and reasonable clergyman, raised objections to the
performance as well. On the other hand, playwrights, artists and men of
letters regrouped. They maintained that banning a play set a dangerous
precedent for the freedom of thought and expression. They further claimed
that the objectionable portions had been removed. Their voice found favour
in Trivandrum, the state capital.
Our intention, as administrators, was to let the show go on. However, a
day prior to the scheduled staging, protests assumed a feverish pitch, pressure
from the church became strident, and large groups of people, including
miscreants, started to converge. Candlelight processions, token gheraos of the
collector’s bungalow, and street corner meetings were organized to put
pressure on the district administration to ban the play. Police intelligence
trickling in was disturbing, as it seemed that if those in favour of the ban
reached the auditorium, the opposing side would not hesitate to take them on
physically. We had to act quickly. Using Section 144 of the CrPC and
prohibiting an assembly of people would be counterproductive, as it would
make the staging of the play virtually impossible. On the other hand, banning
the play could attract contempt of court, since the High Court had permitted
the staging.
I called a meeting of the police authorities and the executive magistrates
of the district. Information coming from all quarters was analysed. I finally
decided that the responsibility for maintaining public peace and tranquillity
was the direct and immediate responsibility of any district magistrate. While
freedom of expression, undoubtedly a fundamental right, needed to be
upheld, it could not be defended at the cost of carnage and destruction, and
the loss of innocent lives and public property. I reasoned that if a
fundamental right was being impeded, it was for the higher judiciary to give
an order which could be applicable to the state or the country, and the larger
government machinery could implement this decision. At the local level, I
was not in a position to let a conflagration take place. Hence, I decided not to
permit the staging of the play.
At the same time, to be fair to the artistes, and so they could present
their case before a court of law, I decided to pass the order prohibiting the
staging of the play the previous evening itself, so the aggrieved party could
approach the High Court and seek redress in the morning, before the time
slotted for the first show of the play. The next morning, the theatre company
did go to court. The court heard them out, but on reading the order of the
district magistrate and his reasons for imposing the ban, the court upheld the
order. The play was banned from being staged in Thrissur district.
Any guilt that I harboured for supposedly having stifled the freedom of
speech and expression was set to rest when about a year later, in December
1987, after just about all the DCs had banned the play in their respective
districts, the High Court gave a final ruling. The court clubbed my order with
other orders, and issued the verdict that any functionary in the position of the
collector, while aware of the sentiments of large sections of people in his
jurisdiction, could not possibly ignore the potential consequences of
overlooking majority opinion. The court ordained that the issue was not
whether the play was a true adaption of the book by Kazantzakis, but that the
disruption of public order, tranquillity and harmony in society could not be
allowed. The court further ruled that the district magistrate had the power,
even under the Kerala Dramatic Performance Act, to prohibit objectionable
performances after following the prescribed procedures under the Kerala
Dramatic Performance Rules 1964.
This was an important learning curve. I came to see merit in taking
action that was balanced and objective. This was all the more important since
the state and its people trusted me and were in some ways at the mercy of my
pronouncements; the responsibility placed on me was onerous. The decision
taken regarding the play stood the test of scrutiny over the years and has
become the beacon for future action in similar circumstances.

Thrissur provided me another unique opportunity: a meeting with His

Holiness Pope John Paul II on 7 February 1986. The Pope visited India from
1 to 10 February 1986. His schedule, made available in the public domain
weeks before his arrival, indicated that he would be in Kerala on 7 and 8
February 1986. The cities that his itinerary covered were Cochin, Kottayam
and Trivandrum. There was no mention of Thrissur.
However, Chief Minister Karunakaran kept insisting that Thrissur would
eventually be part of his itinerary. Since the district administration and the
Christian community had tremendous faith in the word of the chief minister,
everyone, including the bishop of Thrissur, had to prepare for the event.
There were barely weeks remaining for the papal visit, and we swung into
action. The chief minister inaugurated the central committee constituted for
the papal visit, and a site for the public meeting was identified. Making
arrangements for the expected gathering of about 1.2 million people were
daunting. Every detail had to be taken care of.
While planning was in progress and the venue was under preparation,
we were nagged by lack of any official confirmation from the government of
India regarding the Pope’s visit to Thrissur. I would check with the chief
minister at least twice a week to see if the formal programme had been
received. Each time he would give me his characteristic wink and say, ‘You
go ahead, everything will fall into place’. It did ultimately. But not before we
had all begun to perspire, since public money was being spent without any
official confirmation from Delhi.
The Pope arrived at 10 a.m. on 7 February 1986, landing at a specially
prepared helipad. The Pope mobile had been stationed there. The route of the
papal cavalcade to the venue was dotted with people. The Thrissur temple
committees had lined up fifteen gorgeously adorned elephants and had
traditional panchavadyam music. It was a lovely sight. The entire ceremony
lasted for about two hours and we all heaved a sigh of relief after the Pope
took off. It was probably the largest gathering of people in Thrissur from
north Kerala, parts of Tamil Nadu and Karnataka.

As a consequence of the elections held around April 1987, the Congress-led

United Democratic Front (UDF) alliance, of which Karunakaran was the
chief minister, lost to the Left Democratic Front (LDF) led by the CPM.
Ordinarily, when governments change, the secretary to the chief minister, the
DC of the chief minister’s district and other so-called favourites end up as
bureaucratic causalities. I had reconciled myself to this, more so as I had
already completed two years in the district. But a different kind of crisis
awaited me.
Bureaucrats usually undergo a mid-career training programme abroad of
about nine months to a year. I had also applied and had been shortlisted for a
training programme at the Harvard Kennedy School (in Harvard University)
for what is popularly known as the Mason Program. This is a prestigious
course and probably the only one in which a professor from the foreign
university comes to interview and then select the applicants. In April, I was
informed that I had been chosen. I was thrilled.
After the change of government in the state, I did a routine ‘calling on’
on the new revenue minister, a CPI man. He was nice to me and in the course
of the conversation I told him that I had been selected for a course abroad. He
immediately responded, ‘Don’t assume that we propose to remove you from
Thrissur, and try to go away on a course. In fact, we do not plan to remove
you at all, so go back and complete the projects you have initiated. Forget the
course!’ I panicked. Going to Harvard was an opportunity of a lifetime. I was
among the five selected from about a hundred applicants. How could I give it
up merely to remain a DC for another six months or longer? I politely
explained the significance of the course. The revenue minister wished to hear
no more and dismissed me from his presence.
 A feeling of terror slowly began to engulf me. What was I to do? I could
not blame the minister, as he was being nice to me and did not know the
significance of the training programme. Out of desperation, I made a beeline
for the chief secretary’s office, waited my turn, met him, and narrated my tale
of impending woe. He did appreciate the situation, and told me he would take
care of it. I remained on tenterhooks till, finally, I took the flight out for the
US.
I left Thrissur in June 1987. My love affair with the town and the district
continues.

DELHI

Later, in 1992, I got another opportunity to come back to Delhi—as joint

secretary in the ministry of defence, dealing with issues pertaining to the
Indian navy. N.N. Vohra was the secretary, an outspoken, experienced and
no-nonsense bureaucrat. He was a stickler for norms and punctuality, and I
became familiar with his scribbles on discussion notes: ‘Pl discuss today at
2.12 p.m.’ Sure enough, he would be back from lunch and in his office at the
appointed time.
Vohra introduced me to the significance of the civilian bureaucracy, and
why the Constitution makers had buffered them between the uniformed
bureaucracy and the political executive. The presence of the civilian
bureaucracy is seen an impediment and a stumbling block by the armed
forces. However, the earlier the officers in the armed forces accept this basic
premise enshrined in the Constitution, the easier it will be for them to manage
their affairs efficiently. There is quite often a demonstrated tendency to win
over the political executive (the minister) on issues which suit the immediate
requirements of the military, without a detailed examination, ostensibly in the
belief that ‘babudom’ will delay decision making. This phenomenon has been
succinctly explained by the then defence minister, R. Venkatramanan in a
one-page noting on one of the files of the ministry of defence; here, he
clarified why the Constitution makers provided for a civilian bureaucracy
between the minister and the uniformed executive.
I had an interesting experience during this tenure. The Indian navy had
seized a Liberation Tigers of Tamil Eelam (LTTE) vessel carrying arms and
ammunition; on board was Kittu, one of the most senior leaders of the LTTE.
Kittu and his men did not surrender, and in the melee that ensued, the vessel
MV Ahat caught fire and sank in Indian waters. Besides the probable
disappointment that Kittu could not be captured, the Indian navy lost the arms
and ammunition that were on board. Later, a habeas corpus petition was filed
by Kittu’s mother in the Madras High Court against the Indian navy seeking
that they make Kittu available; the belief was that he was in Indian captivity.
I filed the affidavit on behalf of the government. The case got adjourned
repeatedly; it turned out that no bench was willing to try the case for fear of
the LTTE. The solution? It came from the court itself: transfer the case to the
Andhra Pradesh High Court, ostensibly on the grounds that the ship had been
seized by the navy off the coast of Vizag.

Very soon, I moved to the desk of the joint secretary (air force)—another
disciplined and professional force which was easy to deal with. Mulayam
Singh Yadav took over as the defence minister. All officers were advised to
brush-up on their knowledge of Hindi. Air force pilots, especially those from
the helicopter squadron, had soon to familiarize themselves with all the towns
of Uttar Pradesh (UP). In one of his first visits as minister, Yadav wanted to
visit Etah. While quite a few in the squadron, and otherwise, knew of Etawah,
not many knew of Etah. So, when the first requisition came for the minister
to be flown to Etah, the squadron actually thought it was a spelling mistake
for Etawah! Needless to say, we didn’t lose time in becoming familiar with
all the towns in UP.
I had an interesting altercation with Mulayam Singh Yadav. The
minister summoned me and requested that the transfer out of Delhi of a
certain sergeant rank non-commissioned officer (NCO) of the air force be
cancelled. As is the practice that we follow when such requests are made, I
said I would check on the position and get back to him. The response seemed
to surprise him—why not carry out the order and then report back, rather than
check on the situation and revert—but he let it pass. The air force informed
me that this sergeant had already spent eleven years in Delhi and was in the
habit of using political connections to stay on whenever transferred out. This
pulling of political strings did not go down well with the air force. I informed
the minister of the air force’s reservations, citing discipline, norms, rules of
tenure, demonstration effect on other officers, etc. It was then the minister’s
turn to see red! He sent me packing with the suggestion that I get back to him
after carrying out the assigned order. I was caught between a recalcitrant air
force bureaucracy and the minister—my sympathies obviously being with the
former. So I made an appearance in the minister’s room again. Our
conversation went something like this:
Me: Sir, the air force has serious reservations as this person is
spoiling the morale of others by repeatedly circumventing orders to
suit his convenience. In a uniformed service, they consider it an act
of serious indiscipline.
Mulayam Singh Yadav (MSY): What? You mean I can’t even ask
the air force to change their orders?
Me (looking contrite): Well…
MSY: Are you trying to tell me that whereas in the state as a chief
minister I could transfer a three-star director general of police at
will, here I can’t transfer a three-stripe wearing NCO of the air
force? What kind of a helpless minister do you want me to be?
This went on. And on. Good logic. Indeed, very good logic. What does one
say? I left it at that. The NCO had to ultimately move out, albeit three months
later. The bureaucracy also has its bag of tricks.

There were very many other ‘exciting’ times—exciting when one reflects on
them, but not necessarily exciting when one is in the midst of those issues.
Leaving the more strategic incidents aside, I find two episodes worth
narrating. One pertains to Arunachal Pradesh. States in the Northeast have
genuine logistical problems. To facilitate VIP and emergency movement,
each of the states has been permitted flying hours each month by IAF
helicopters. The then chief minister, Gegong Apang, was a frequent user of
these flying hours. On one particular occasion, he had to board an air force
single-engine Chetak helicopter from Pasighat to Itanagar. This helicopter
can carry four passengers and baggage besides a crew of two pilots. Also,
since there are no refuelling facilities at Itanagar, the helicopter has to
perforce carry fuel sufficient for the up and down sorties. The chief minister
arrived at the helipad with his entourage. They were to board when the pilot
realized that the number of passengers and the weight of the baggage together
exceeded permissible limits. He apprised the chief minister of the danger, but
the latter would hear none of it. There was a deadlock: the chief minister
insisted on being flown in the manner he decreed, while the pilot insisted on
following the safety protocol. The chief minister told the young pilot, ‘I have
eighteen years of flying experience in these areas, so please do as I direct’.
The pilot pleaded again. By this time the chief minister, not being
accustomed to his instructions being flouted, had got worked up. His ultimate
threat was that if the pilot did not do his bidding, he would have him locked
up. And he did. This was the height of arbitrariness.
Phone lines started ringing. The air force was understandably upset. The
issue reached the defence minister who promptly tried to contact the chief
minister on phone, unsuccessfully. The union home minister was then
prevailed upon to speak to the chief minister. He did so. The pilot was not
released. Meanwhile, the services were getting restive and wanted the officer
released before nightfall. The army brigade stationed near Pasighat was more
than willing to walk into the so-called police lockup and bust the officer out.
Tempers were rising. Night fell with the poor pilot still behind bars. At 5 a.m,
I was dispatched to Arunachal to try and melt the chief minister’s heart. We
flew to Jorhat by a fixed-wing aircraft. From there I was to take a chopper to
meet the chief minister. However, after landing at Jorhat, I was told that no
one seemed to know where the chief minister was. After some effort, the air
force located him in Ziro. I took the chopper to Ziro and managed to meet
him at the guest house there.
The chief minister was indeed indignant about the ‘disobedience’
displayed by the pilot. I tried to placate him. He rejected my efforts at
mollification. His refrain was, ‘For a mere flight lieutenant, the home
minister of the country had to speak to me!’ Anyway, after a great deal of
appealing and cajoling, he finally relented. Word was sent. The poor pilot
was released.
As they say, all’s well that ends well.

The other event that merits narration is what has now popularly come to be
known as the Purulia arms drop case. The arms drop on 17 December 1995 in
Purulia had happened, and the media and the intelligence agencies were agog
with the news. It was known that a Latvian AN-26 aircraft had flown from
across the border and, via Varanasi, flown over Purulia district in West
Bengal. Here, it had dropped a cache of arms and ammunition in the night for
unidentified persons. Before the aircraft could be located, it had left Indian
airspace. Alerts had been sent out, but these were to no avail. Several days
later, probably on the night of 21 or 22 December 1995, the aircraft re-
entered Indian airspace; it seemed to have flown around the eastern coast to
Madras, refuelled there, and was flying over Mumbai en route to the Gulf. It
was an alert air traffic controller who recalled the ‘call sign’ as being the one
for which the lookout had been posted. He informed his commander, who
went up the hierarchy. The air chief was out of Delhi. Then Air Vice
Marshall M.S. Sekhon contacted me at night. The aircraft had been traced
and it was being requested to return and land at Mumbai. It was headed in a
westerly direction over the sea. What was one to do if the aircraft did not
agree to return and continued on its predetermined flight path?
The air force scrambled its MiG-21 fighters from Jamnagar. They
caught up and buzzed the AN-26. Tensions were rising, in case the AN-26
ignored all signals—during times of peace you cannot afford to shoot a
civilian aircraft. The air force flew alongside the AN-26 and I believe the
pilot’s nerves gave in. He blinked. He turned around and landed at Mumbai.
We breathed easy and went back to sleep—to later learn that Kim Davy, the
pilot, had just walked out of the Mumbai airport after landing there! But that
would be another story, possibly for someone else to tell.

In the last couple of years, much has been said about the decision making
paralysis within government as a result of the ‘over-activism’ of the CAG,
the central vigilance commission (CVC), the central bureau of investigation
(CBI) and the courts. It needs to be stated that audit, in all its ferocity, has
been in existence and has always been feared. We have faced audit in the
public accounts committee (PAC) in Parliament and in the legislatures, and
have lived in constant trepidation of it. However, transparent and well-
recorded decisions involving huge financial commitments have never faced
any difficulty.
I recall one such example. In April 1996, a contract was signed with
Russia for the supply of 120 Su-30MKI aircraft for a sum of 6,310 crore.
This contract was signed after more than a year of technical and commercial
negotiations. All necessary procedures were followed. With a delegation led
by the then defence secretary, K.A. Nambiar, I had signed the contract on
behalf of the government of India, at the manufacturing base of the aircraft—
Irkutsk in Siberia. After signing the contract, an advance, as per contractual
conditions, of 596 crore was paid. The payment of this sum at a time when
Russia was going to the polls attracted a lot of attention in India. People’s
imaginations ran wild and, as is common for large contracts, allegations
started surfacing. Soon, India too had general elections, and a government led
by Atal Bihari Vajpayee took charge; Pramod Mahajan took over as the
defence minister. Obviously, this contract attracted his attention. Mahajan
asked for the papers and a briefing. The defence secretary felt we should give
him all the details in a comprehensive note. This was done. Unfortunately,
that ministry lasted only thirteen days. On the day he demitted office,
Mahajan returned the file, convinced of the deal being above board. I only
wish to say that large contracts obviously attract adverse attention, but as
long as officers have transparently recorded the actions taken and have done
everything in good faith, they have no reason to feel paranoid about any audit
or investigating agency. Hence, why cry wolf?

TRIVANDRUM

I had another stint in Kerala as the principal secretary in the finance

department of the state. This was in 1997, when I had returned from Delhi
after the stint in the ministry of defence. The LDF government led by the
CPM was in power. E.K. Nayanar, a CPM veteran, was the chief minister,
and the finance minister was T. Sivadas Menon. The latter was an
exceedingly affable and warm person. He was very considerate towards his
officers and was receptive to new and progressive ideas. The ways and means
position of the state was precarious and it was quite a struggle to collect
resources to cover the development and administrative expenditures of the
state.
For a short while, I was also in charge of the sales tax and excise
commissioner’s post. It was during this assignment that I came to understand
the distinction between a corrupt officer and an honest one. According to the
excise officers’ yardstick, an honest officer is one who quietly accepts his
share of the payouts (hafta) as is apportioned by the assignment he holds. The
apportionment norms are well delineated in the hierarchy. As against this, the
dishonest officer is one who, after accepting his apportioned share, is
dissatisfied and goes forth to extract more from the party. A rather unique
definition, but I guess each department comes with its own ‘ideology’.
I was fortunate to have colleagues such as Dr A.K. Dubey, Dr K.M.
Abraham and V.S. Senthil to help me within the different branches of the
larger finance department. These officers knew their work thoroughly, were
dedicated to their assigned duties and were objective in their approach.
Having such a dedicated team did lessen the burden on me; moreover, the
minister trusted us and would not take any major decision without consulting
us.
For the finance department, the most important period is always the
budget preparation time. In the year 2000, we had a very peculiar problem,
which could have caused great embarrassment. The state budget is always
read out in the legislative assembly in Malayalam. According to standard
practice it is written first in English, and after being okayed by the finance
minister, it is translated into Malayalam during the night preceding the
presentation. This is done at the eleventh hour to avoid the possibility of any
leakage of information. That year, we decided to complete the entire process
in-house. While transcribing the translated portion, the computer
malfunctioned and portions of the speech were irretrievably lost. There was
panic. These kinds of catastrophes have more watchers from the sidelines
than problem solvers.
The Kerala secretariat is also the battleground of political unions, owing
allegiance to the ruling and opposing combines. By morning, word spread
like wildfire that the Malayalam text was unavailable and that the finance
minister would be forced to read the English version instead. Obviously, the
opposition, looking for an opportunity to mortify the government, would not
allow the speech to be read in English, thereby orchestrating a first-class
constitutional crisis.
Abraham and I had sat through the whole night in the office. As a
measure of abundant caution, every page of the translated speech that was
shown to me for approval had been photocopied by me and kept. This was
the document which was available with us, and indeed saved the day. I
apprised the minister of the situation at about 7 a.m. He was unflustered. He
was perfectly willing to read from the photocopied text as against the normal
neatly printed speech. We assured him that by the time he completed the
speech in the assembly, we would have redone the entire process and have
the printed versions ready.
 The assembly convened. Fireworks and theatrics were expected. Just as
the speaker gave permission to the finance minister to present the budget, the
leader of the opposition got up to protest in advance against any attempt by
the minister to read his speech in English. There were shouts and counter
shouts. Finance Minister Sivadas Menon played along, enjoying himself
thoroughly as he had the Malayalam (photocopied) version—a fact that the
opposition was not aware of. Every five minutes spent on such wrangling
gave us additional time to finish our work. After a good twenty minutes of
hurling allegations and counter allegations, the minister was allowed to read
his speech. And the opposition got a surprise as he began reading it in
Malayalam—their intelligence reports through union representatives had
suggested otherwise.
By the time all the formalities in the assembly were over, Abraham and
his team had redone everything, and the printed version of the speech and the
budget documents were in the pigeonholes of the MLAs in the MLA hostel.

DELHI

I had an opportunity to return to Delhi for my third central tenure as a joint

secretary in the cabinet secretariat in November 2001—an appointment
which blue-blooded bureaucrats do not consider very attractive. The then
cabinet secretary was T.R. Prasad, a thorough professional, and he had three
joint secretaries working with him—Dr Sanjiv Misra, Anup Mukherjee and
myself. In the government of India, senior officers, namely joint secretaries
and those higher up, have the status symbol of a red or green light outside
their rooms, to indicate whether they are occupied or free. In the cabinet
secretariat, the cabinet secretary had such a light outside his door; as a
departure from the tradition, the joint secretaries had red and green lights
affixed inside their rooms. Why, you may well ask. This was to indicate
whether the presiding deity, the cabinet secretary, was free or engaged.
However, the lights being red or green did not excite us. What excited us was
if both the lights were switched off. This indicated that the boss had left,
which meant deliverance—translated, we could quit office—invariably
within sixty seconds of the lights losing their glow.
Despite the ‘non-attractive’ tag attached to the post, the three of us
enjoyed our stint and did have substantial freedom in our interaction with the
cabinet secretary. He listened to our views and contributions. And we, of
course, were rather liberal in providing our opinions.
It was during this period that there was a terrorist act in Parliament.2
Following the attack, participating in cabinet meetings and consultations of
the cabinet committee on security was educational; above all else, I got to see
that if the cabinet secretary had the depth of expertise required to innovate
solutions, the post provided enormous scope. It was also during this time that
the unfortunate events in Godhra and Ahmedabad took place—I was
entrusted with the task of coordinating relief efforts in Gujarat. Finally, at the
point when India seriously began considering the possibility of a
conflagration on our western border, the cabinet secretariat provided real-
time coordination among the different ministries of the government, which I
handled inter alia.
After spending exactly 365 days in that office—as part of a large
number of lateral transfers of joint secretaries out of the ministry of finance—
I was moved into the ministry of finance as joint secretary (banking). Jaswant
Singh was the finance minister. One of my first tasks was the immediate
restructuring of the liabilities of financial institutions such as the Industrial
Development Bank of India (IDBI) and the Industrial Finance Corporation of
India (IFCI). It was a complicated task as the institutional creditors were
other public sector banks who were in no mood to take a haircut on account
of the difficulties being experienced by these two institutions. They felt that
the government must step in to take over all liabilities. This, of course, was
not feasible. We somehow managed to thrash out a solution.
The creditor banks involved sought an opportunity to present their case
before the minister rather than acquiesce to a mere joint secretary. Jaswant
Singh initially ignored the request, saying that the officers represented the
ministry as much as the minister, but the finance secretary Dr S. Narayanan
and I finally managed to prevail upon him to meet the creditor banks. Before
agreeing to do so, Singh cryptically remarked, ‘I shall brook no dissent’. The
representatives of the creditor banks were ushered into his room. Before they
could reach his desk, he had walked down the length of the room to the door
and greeted them with folded hands, saying, ‘Gentlemen, thank you very
much for your cooperation.’ Singh turned around and went back to his desk.
That was all. The issue was settled. All of us trooped out.
In May 2004, the government changed, and P. Chidambaram became the
finance minister. A lawyer of repute, this was his second term as finance
minister. He was a study in contrast to his predecessor. Whereas Jaswant
Singh was the large-picture, helicopter-view minister, who gave the mandate
and left the details to the officers, Chidambaram was totally hands-on, and it
was a challenge to keep pace with him in terms of the actions and decisions
to be taken. Professionally, it was a pleasure to interact with both of them.
In June 2005, a piquant situation arose. Public sector banks were being
exhorted to reposition and reorient themselves, and face the challenge posed
by the new generation private sector banks which had begun to market their
products and services rather aggressively. Some public sector banks did take
up the initiative in right earnest, one of them being Bank of Baroda. The bank
had decided to change its logo to one which represented energy and
dependability—a rising sun, branded as ‘The Baroda Sun’. The logo was in
vermillion, akin to one of the colours in the national flag, and was launched
by the bank’s brand ambassador, Rahul Dravid, then labelled ‘Mr
Dependable’ due to his consistent batting performance as a cricket player.
The logo was received well and the bank did manage to score in terms of
capturing eyeballs and brand recall.
However, some mischief mongers wrote to those high up in the
Congress party, and said that the bank had adopted the saffron colour which
was the colour of the principal opposition party, the Bharatiya Janata Party
(BJP). Rather far-fetched, but it set tongues wagging. The viewpoint being
touted was that public sector banks should take government clearance to
change logos. This put pressure on P. Chidambaram, the finance minister. It
required considerable convincing on the part of the bank’s chairman and
managing director, Dr A.K. Khandelwal, to thwart a concerted effort to seek
the withdrawal of the logo. Once the finance minister was convinced, he also
lent his weight to the effort, and a rather embarrassing and retrograde action
was aborted.

In July 2006, we had another very interesting situation emerge. The

government was keen that financing for productive investments be facilitated
and encouraged by banks. The idea was to offer credit at competitive rates.
Such rates are usually benchmarked to the prime lending rate of each bank.
The cost of funds was increasing and, naturally, banks felt the need to hike
their rates and, indeed, the prime lending rate. They did so, and practically all
banks announced increases in the prime lending rate in the range of 25 to 50
basis points. This was unacceptable to the minister as it would make credit
more expensive for borrowers. He wanted all banks to reconvene their boards
and reconsider their decision. Most of us officers who were on the boards of
these banks thought it improper for the government to issue such directives.
The minister however was adamant. The boards met. I was then on the board
of Bank of Baroda. The bank officials made a presentation. The logic for
hiking the prime lending rate was compelling, and all the other directors too
felt that the hike was justified. I could not go against the merit of the case.
Bank of Baroda’s rate remained unchanged.
Understandably, the minister was upset. He felt that the banking
secretary was not in sync with him. After the board meeting, I sent a note to
the minister informing him that withdrawing the hike was inadvisable. In all
fairness, he accepted the position taken by me after reading the logic guiding
it. The banks heaved a sigh of relief, and board autonomy was preserved. The
following day, The Economic Times3 carried an editorial which said,
‘Congrats, Mr Chidambaram’—congratulations for preserving the functional
autonomy of banks.
Sometimes—though not too often—one blesses journalists too.

—————————
1The Jacobite Syrian Church is an integral part of the Syrian Orthodox Church located in Kerala. The
Patriarch of Antioch is its supreme head. It functions as an autonomous Indian church with a provincial
episcopal synod under the authority of the Catholicos of the east, ordained by the Patriarch of Antioch.
The community, however, developed two factions owing allegiance to the Cathilicos (headquarters at
Kottayam) and the Patriarch of Antioch, and these factions came to be known as the Malankara
Orthodox Syrian Church (which has its presence in Kerala) and the Jacobite Syrian Orthodox Church.
These are colloquially referred to as the ‘Methran faction’ and the ‘Bava faction’. The Syrian Orthodox
Church challenged the supremacy of the Patriarch of Antioch beyond being its spiritual head. The two
groups are constantly in dispute with each other over church properties and the right to worship in
different churches belonging to the faith; so bitter are their disagreements that they have been litigated
up to the Supreme Court with no solution as yet. To avoid clashes, the churches have been taken over
under the CrPC by the sub-divisional magistrate, who then allots different timings for the two factions
to enter the premises and conduct prayers every Sunday.
2See ‘Indian Parliament Attack Kills 12’, BBC, 13 December 2001.
3T.T. Ram Mohan, ‘Mr Chidambaram Has a Point’, The Economic Times, 9 August 2006.
 2

THE ROLE OF AUDIT

n 17 March 2008, while I was in Washington, DC to attend a meeting

of the steering committee,4 Meenakshi Sharma, deputy secretary in the
department of personnel and administrative reforms, called to inform me that
the cabinet secretary wanted to speak to me about my participating in the
Civil Service Day function. This function is traditionally held on 21 April
every year at Vigyan Bhawan, the government’s iconic convention centre in
Lutyens’ Delhi—iconic because all major events in which the president and
prime minister of the country participate are traditionally held at this venue. I
called K.M. Chandrasekhar, the cabinet secretary, a close friend and
colleague. Sekhar, as he was popularly known, was from the Kerala cadre (as
was I) and is a widely respected officer, often lauded as the quintessential
civil servant and a good human being. He told me that Prime Minister
Manmohan Singh wanted me to speak at the event, focussing on the positive
aspects of audit, and thus countering negative preconceptions about audits
conducted by the CAG. He also wanted me to dispel the impression that the
bureaucracy is traditionally dogged by three Cs: the CAG, the CVC, and the
CBI.
Unhesitatingly and enthusiastically, I accepted the invitation. By then I
had spent over two months on the job as the country’s CAG and felt the need
to create a more constructive role for, and attitude towards, audit. Such a role
was feasible only if the auditing community and the audited departments
were on the same wavelength and viewed audit as a mechanism contributing
to better governance and greater transparency.

THE FUNCTION OF AUDIT

Internal control or concurrent evaluation is a process effected by an

organization’s top management, and designed to provide reasonable
assurance of objective and efficient operations, reliable financial reporting
and compliance with applicable regulations. Effective internal control
requires a strong internal audit function. The responsibility for such
concurrent evaluation lies primarily with the executive, and the vehicle of
such evaluation, in most jurisdictions, is internal audit. The stronger the
government’s capabilities for internal audit and control systems, the greater
the chances of speedy and efficient implementation of projects. Further, a
strengthened internal audit function helps mitigate fear of external audit.
The government auditor, or the CAG, provides a critical link between
the executive on the one hand and the Parliament and the community on the
other. It alone subjects the operations of the executive to regular, independent
investigation and review, thereby providing credibility to government
operations. The audit objective is to draw the attention of the executive to the
loopholes, the lacunae, the acts of omission and any violations of established
policy guidelines in the process of implementation. The attempt is to improve
the delivery system so that society benefits from better governance, and the
efficiency and effectiveness of governmental devolutions are not lost. Audit
provides oversight, over and above the internal accountability system of the
executive.
Audit has often been labelled as being an impediment to accelerated
performance, a function that blunts initiative, and as a fault-finder. Not so, in
my estimation. I contend that of the government departments and public
sector undertakings (PSUs) liable to the same audit, a majority have
performed extremely well. We have examples of public sector banks,
telephone companies, aviation companies and government departments in the
social sector that, with the same so-called ‘drawbacks’, have delivered better.
They have, in fact, outperformed private sector agencies. This would lead one
to the inevitable conclusion that citing audit as a stumbling block is indeed an
alibi for non-performance. No doubt, government programmes merit
expeditious implementation and the government’s procedures are often long-
drawn-out and cumbersome. These deserve to be streamlined. But one has to
be judicious in cutting corners as core issues cannot be compromised on
grounds of expediency. There is no ‘we’ or ‘they’ between ‘audit’ and the
‘administration’: we both are on the same side and share common goals.
While the administration is the expending agency of governmental resources,
audit is merely the validation agency providing comfort not only to the
government but also to the common man that the money extracted from him
(as taxation) has been efficiently spent.
Let me explain this with an analogy: the government machinery
represents a kind of principal-agent relationship. The principals are the main
shareholders, namely, the public at large. The executive, acting as the agent
of the principal, must periodically account to the principal for its use and
stewardship of resources and provide comfort regarding the extent to which
public objectives have been accomplished. The principal relies upon audit to
provide an independent and objective evaluation of the accuracy of the
agent’s accounting. Audit, then, reports on whether the agent used the
resources in accordance with the wishes of the principal. It ensures
parliamentary control over expenditure voted by the legislature. It also
ensures accountability of public authorities towards public monies raised and
spent by them to implement policies and programmes approved by the
legislature. Accountability and transparency, the two cardinal principles of
good governance in a democratic setup, depend, for their observance, on how
well the public audit function is discharged. It is for this reason that the
legislatures of many countries the world over have ensured the independence
of supreme audit institutions.
Clearly, long-term benefits can be derived if audit and the executive
share a cooperative and proactive relationship; they need to establish a close
rapport to encourage interaction without sacrificing audit objectivity,
independence and integrity. Audit is not a dragon—it should not be
considered a ‘drag’; it is not even a ‘gun’. Rather, it is an instrument in the
hands of the administrator, awaiting positive application.

BARBS DIRECTED AT AUDIT

In the recent past, the office of the CAG has been at the receiving end of a
number of comments, sometimes congratulatory, oftentimes scathing. Four
statements in the recent past sum up the situation.
Manish Tewari, former information and broadcasting minister, said:
In the last two or three years, India has been witness to a most
corrosive discourse which a democracy or any nation could
possibly feel. Some of the actions which were taken by some of our
institutions or especially people who headed the institutions, is a
classical reminder that when individuals decide to go rogue,
institutions suffer. That possibly has the most detrimental effect on
the India growth story, and I refer to the CAG’s report with regard
to the 2G spectrum.5
This is the government’s perception—that the CAG’s audit reports were a
dampener on the India growth story. Now, see what the business community
has to say. CNBC TV18 presents the India Business Leader Awards every
year. This award is decided by a jury of seven eminent persons—leaders from
the business community, media, government and the financial sector. The
award for ‘Outstanding Contribution to the Cause of the Indian Economy,
2013’ was presented to me—a person who, according to certain ministers,
had decided to go rogue and cause harm to the Indian economy. Interestingly,
the people who actually contribute to the growth of India, feel otherwise.
Then, we had Sharad Pawar, the former food and agriculture minister,
say:
CAG has taken certain decisions that have created a different
atmosphere in the country. I have a serious objection—when we
see half reports being leaked, when CAG officials are addressing
press conferences and talking about sensational things. […] I
haven’t seen something like this in the forty-five years of my career
as a politician. […] We have to think ourselves whether we have
selected a proper person.6
The most befitting answer to this was given by the government itself. Pranab
Mukherjee, then the finance minister and now the president of India, while
speaking at the Economic Editors Conference, said: ‘I am making it clear that
I do not think the CAG [is] exceeding its jurisdiction, because the basic
responsibility of the CAG is to identify if there is any lapse.’7
 Further, in a written response to Parliament on 23 December 2012, the
former finance minister stated:
There is no urgent concern about CAG being partisan or working in
favour of the government or a particular political party. As
custodian of [the] public purse, CAG has played the role of a
vanguard in reporting on financial irregularities, irrespective of the
government in power.8
If ever there were a case of mixed perceptions, this is it.

In the rich tradition of parliamentary democracy, auditors general have been

given a position, independent and equal to Supreme Court judges. In this
context, it is interesting to learn of an exchange that took place in 1960 in
Parliament. As is normal, the CAG presented a report in Parliament on the
audit of the ministry of defence. The report stated:
Despite repeated exhortations by successive Public Accounts
Committees and assurances given by the ministry, their provisions
continue to be disregarded by the administration authorities.
Fictitious financial adjustments intended to conceal lapsed grants or
to cover up excesses over allotments were noticed in a number of
engineer divisions.
This observation did not go down well with the then defence minister,
Krishna Menon, and he made the following statement in the house:
If it [the observation] had not come from the auditor general and
we were not familiar with it, and if I so wanted to say—I do not
want to—I could have said that this was a malicious overstatement,
but I do not intend to say so, sir.
Even this mild statement by the defence minister attracted criticism.
Members objected. The then CAG, A.K. Chanda, wrote to the speaker. While
the letter was not placed on the table of the house as the CAG had marked it
‘secret’, the speaker explained the gist, stating that the CAG felt that under
the Constitution, he was bound, in the discharge of his duty, to point out
mistakes, and because he found these from time to time, he had to use this
language. The CAG took exception to the words attributing motives, and if
this was allowed, he would not be able to discharge his duties, nor would the
host of subordinates. The speaker then asked the defence minister whether he
had anything to say in response.
Defence Minister Krishna Menon, speaking on 14 March 1960, said:
Mr Speaker, I do not want to explain any of these, because it is
likely not only to convey the wrong impression, but in a sense
make the expression of regret qualified. Therefore, I would like to
express my regret in regard to these two statements to which you
have made reference, and request that, as you direct, they may be
withdrawn.
This was the quality of our parliamentarians. They were statesmen; they
recognized their strengths and limitations and conducted themselves with
dignity. The speaker decided to withdraw the defence minister’s statement in
view of his expression of regret; but the statement would not be expunged as
it had to be kept on record.
In case we believe that these were the good old days, and no longer do
politicians display such decorum or respect for constitutional institutions
performing their duty, we have another example of statesmanship at the turn
of the millennium. In early 2000, specifically after the Kargil conflict, there
were a large number of allegations inside and outside Parliament regarding
the procurement of defence equipment. After a short discussion, the defence
minister, George Fernandes, requested the CAG to conduct a special audit in
the areas pertaining to the allegations. This was on 10 February 2000. A
special audit was done and the report was tabled in Parliament on 11
December 2001. The report—‘Review of Procurement for OP Vijay
(Army)’—highlighted the fact that nearly all supplies were either received, or
contracted and received, well after the cessation of hostilities and therefore in
no way supported the operation.
Meanwhile, The Times of India published a scathing article on these
procurements,9 appearing on the same day as the CAG report was tabled in
Parliament. As a result, the working of both houses of Parliament was stalled
for two days. It was around this time that some unclassified information was
made available by the ministry of defence to journalists, and in particular to
one R.V. Pandit, ostensibly to set the record straight. R.V. Pandit did his own
research and came out with a booklet titled The Whole Truth With All the
Documents About the Aluminium Caskets Bought by the Defence Ministry in
1999-2000. This booklet was critical of the CAG’s audit review and, on the
cover page itself, made references of the following kind: ‘What does one do
when the CAG is the culprit? Review of procurement for OP Vijay (Army) is
half baked, almost intentionally malicious’. The booklet went on to suggest
that the CAG either refute the charges levelled in the booklet or resign.10
This booklet was circulated by the defence minister to all members of
Parliament (MPs), including members of the PAC, ostensibly to support the
contentions of the ministry of defence and to find fault with the CAG’s
findings. This action of the defence minister and the observations in the R.V.
Pandit booklet enraged all PAC members. N.D. Tiwari, the chairman of the
PAC, in its sitting on 20 February 2002, observed that the manner in which
the office of the CAG had been castigated in the booklet was ‘unparalleled in
the history of the country’. The chairman regretted that this booklet had been
certified by the defence minister and circulated to MPs. The chairman was of
the opinion that after having sought an audit review, for the ministry to
lambaste the CAG’s findings in this fashion, besides inflicting
embarrassment on the institution, encroached upon the rights and privileges
of the PAC. An upset N.D. Tiwari did not wish to discharge his duties as the
chairman of the PAC and offered to resign. However, after being persuaded
by other members to reconsider, Tiwari relented. The PAC, in turn,
unanimously felt that the ministry of defence had transgressed the boundaries
of propriety and had, in particular, breached the privilege of the PAC. After
many rounds of deliberation, and after Buta Singh took oath as chairman
(even as N.D. Tiwari proceeded to take oath as the chief minister of
Uttarakhand), the PAC arrived at a unanimous resolution on 4 August 2003.
It was held that with the defence minister circulating derogatory remarks
against the CAG in the booklet, the matter regarding a possible breach of
privilege also amounting to interference in the functioning of the committee
by the defence minister be brought to the notice of the Lok Sabha speaker for
examination by the privilege committee—such was the force of the protest of
the MPs against the actions of the defence minister. It is also noteworthy that
these views of the PAC members were unanimous, across party lines, and no
attempt was made by the ruling coalition MPs to support their minister.
Contrast this with the majority of the situations emerging in recent
times. Manish Tewari, when asked if the J-Virus (J referring to Jairam
Ramesh, Jayanthi Natarajan, Sriprakash Jaiswal and C.P. Joshi) had derailed
the Indian growth story, said:
 The R-Virus has infected the Indian growth story. The R-Virus
stands for a phenomenon where responsible individuals decide to
become loose cannons, which essentially means that nations and
institutions have to suffer. One of the greatest damages done to this
country was by the former CAG.11
On reading and hearing statements of this kind, fuelled by total frustration,
some distinguished persons, including a couple of leading legal lights, invited
me to analyse them. Discussions ensued. Ultimately the consensus was that
these commentators did not deserve a rebuttal. After all, Tewari, in the Mail
Today Education Conclave, also said, ‘Unfortunately, we have created an
academic environment where our universities do everything but teach
academics.’ Clearly, everybody else was doing everything wrong, was
Tewari’s perception. The debate was put to rest by a distinguished senior
statesman who said that the most apt reply to such people had, in fact, been
given by their own leader. Rajiv Gandhi’s reply to sundry questions asked of
him was: ‘I do not respond to every dog that barks.’12 I have followed that
statement in toto.
Then there was Montek Singh Ahluwalia, the former deputy chairman of
the planning commission, who said, ‘untrained staff [is] auditing CAG
reports’.13 He claimed that our performance audit was not credible as it was
done by accountants not trained for the job. The accountants who Ahluwalia
believed were untrained also conduct performance auditing for the United
Nations, Food and Agriculture Organization, World Health Organization,
World Food Programme, and have recently been selected to audit the
International Atomic Energy Agency and the World Intellectual Property
Organization. Do our ‘accountants’ have to travel abroad for their merit to be
recognized?
It doesn’t end here. Ahluwalia went on to say, ‘The CAG’s primary
work is to evaluate on financial parameters, but when it starts doing
performance evaluation, it gets problematic.’14 My officers wanted to educate
him. They wished to let him know: ‘Sir, we do not do evaluation, we do
audit. We do not do performance evaluation, we do performance audit. That
is why you’ve got an independent performance evaluation office.’ But, more
importantly, if you do not like a particular face, why run down an
organization, recognized in the world as possessing among the best trained
professionals?
 Then there were allegations by the usual persons speaking on behalf of
the Congress that the CAG and PAC chairman met and discussed issues
before and after meetings—as though this were a crime and was done
surreptitiously. The CAG and PAC chairman did and do meet. Not only that,
they discuss reports presented in Parliament. It is the job of the CAG to act as
the ‘friend, philosopher and guide’ of the PAC. The PAC chairman, by
convention, is the leader of the major opposition party, and thus, there is a
well defined official relationship between the two entities. Such a relationship
has been nurtured over generations of PACs and CAGs, and attempting to
read meaning into it is only missing the obvious.
The list of accusations and accusers continues. Even before the CAG
report on spectrum was in the public domain—it was placed before
Parliament on 16 November 2010—the then law minister, Veerappa Moily
said:
The spirit of inquiry, so central to democracy, has to be accepted
and institutionalized. In this context, a word about audit in India
would be appropriate. The institution of the Comptroller and
Auditor General of India, a constitutional body itself, is designed to
be a bulwark against omissions and commissions of the executives,
under the supervision of the legislature. But the way the institution
of audit has functioned has not exactly fulfilled what the Indian
Constitution had in mind while creating the institution. […]
Scandals and scams are known even while they are being planned
and executed. If audit draws attention to them forthwith in a well
published manner such scandals can be halted in mid-stride.
Postmortems are useful but can only be conducted when the patient
is dead.15
This is a rather strange evaluation of the institution of the CAG. The minister
went on to state that the ‘government expressed dissatisfaction on the
working of the CAG’. How does one react to such situations—when ill-
informed comments besmirch a credible institution? It did not make much
sense taking up the issue with the minister. Incidentally, all these public
utterances were made even before the 2G report had been placed in
Parliament!
It is inappropriate for the CAG or his office to speak on a public
platform or through the media. Yet, such statements should not be allowed to
go unchallenged. The minister and the government had to be educated on the
difference between internal and external audit, and the fact that the CAG only
does the latter which, by definition, is post facto; internal audit, as I have
mentioned earlier, is the responsibility of the government. So I did what I
thought was the most advisable. I thought I would bring the issue to the
notice of the prime minister. I wrote to Dr Manmohan Singh on 17
September 2010, stating that internal audits could alert the executives when
irregularities were suspected and were in mid-course [Appendix 1]. I wrote:
External audit, by its very nature, can be conducted only post the
event, namely after the expenditure has been incurred. It is not
known whether the Hon’ble Minister is referring to concurrent
audit or internal audit, both of which are integral to the
administration and are not conducted by the CAG. However, since
there is a specific reference to the CAG, we would very much
welcome to be told how exactly the government perceives audit not
to have fulfilled what the Indian Constitution had in mind while
creating the institution. The statement from a senior minister on an
institution, without providing a specific basis, certainly appears
inappropriate, especially as it is perceived to be on behalf of the
government.
As usual, and as in the case of earlier letters, there was no acknowledgment
from the prime minister or the prime minister’s office (PMO). Contrast this
with the same-day responses that A. Raja got (more on this later).
However, there was a saving grace. The Indian Express carried a
marginal news item on 26 October 2010 titled, ‘Moily to PM: Didn’t Mean to
Belittle CAG’. The item went on to state that the minister, while explaining
his recent remarks about the functioning of the CAG, had written to the prime
minister that he had no intention of indicting or belittling the CAG. The news
item stated that this was in response to the prime minister’s query to him after
‘CAG Vinod Rai protested against the minister’s observations’. I, however,
have no knowledge of the sequence of events, as I received no
communication from anyone in the government in response to my letter.
There was yet another remarkable development—a half-page
advertisement in a newspaper. I reproduce it as a photo. This advertisement
was released by the Associated Chambers of Commerce and Industry in India
[ASSOCHAM] on 26 August 2012. An industry body was publicly
reprimanding the constitutional auditor and stating that its reports on coal
block allocations, the Delhi airport, and surplus coal sharing of Reliance had
created distrust. The advertisement went on to state: ‘The CAG’s conclusions
over the 57 coal block allotment appear to have been arrived at without
taking all the facts into consideration. Only one of the 57 coal blocks has
gone into production’. I thought any prudent and concerned industry body
would have questioned the urgency to allot when the allottees had not even
commenced mining. But then, since every person who wanted to display his
loyalty to the government was hastening to take potshots at the CAG, why
not an industry body? There was not a murmur of protest from anyone in
government, not even from those loudly professing their commitment to the
dignity and independence of constitutional institutions of accountability.
What could the CAG or his officers do? Some overzealous officer rang
ASSOCHAM. He was told that the advertisement was released under the
supervision and instructions of the higher-ups.

The barb that really took the cake was a comment reported in Business
Standard on 20 September 2013—by which point I had retired, and had not
made any public statement, let alone contribute to an audit report. The article
carried a conversation between Aditi Phadnis, a journalist, and Jairam
Ramesh, then the rural development minister. Phadnis records her
conversation:
[…] I [Aditi Phadnis] change the subject: What will the Congress’
campaign plank in 2014 be? ‘Too early,’ is his [Jairam Ramesh’s]
instant response. ‘But don’t underestimate the resilience of rural
India,’ he adds. ‘We have our task cut out for us in urban India—
although we swept urban India in 2009, it will be hard to repeat
that.’
So if you swept urban areas in 2009, why have you lost
ground so badly, I ask. ‘Because of the bhumihar from Ghazipur,’
he said. He was referring to the Comptroller and Auditor General
(CAG), Vinod Rai, who came out with reports on the allocation of
telecom spectrum and contracts for the Commonwealth Games that
pointed to significant scandals.16
Apparently, even one’s caste has been brought into prominence—and this
after sixty-seven years of Independence. If one wants to glean the reaction to
Jairam Ramesh’s statement to Business Standard regarding my caste, one
only needs to log on to the sixty-seven tweets and two comments against the
article. They convey the mood of the public. But in all fairness, I cannot
credit Jairam Ramesh with coining this casteist comment. Let me give you
the background.
Jairam Ramesh was a regular visitor to the CAG headquarters for
discussions on the audit of the national rural employment guarantee
programme. His discussions did indeed lend value. In one of his
conversations with me, he asked why N.K. Singh, the Rajya Sabha MP
representing the Janata Dal (United), used to refer to me not only as a
bhumihar, but as a ‘bhumihar from Ghazipur’. I told him that I did not know
what it meant. Since my father had been in the army and we had moved all
across the country, the significance of caste had been lost on us. Further, the
last thirty-five years in the Kerala cadre had left me with little or no
impression of the caste factor. So what would I make of N.K. Singh’s
comments? However, I told Jairam Ramesh that I could only conjecture that
the word ‘bhumihar’ was not being used in any complimentary manner. To
this, Jairam Ramesh said, ‘Obviously!’ I wonder why?

We come from a family of government officers. My father educated himself

up to an MA, LLB. While pursuing a PhD programme in Allahabad
University, in a fit of patriotism during the war, he joined the Indian army in
1944 as a soldier at the princely salary of 18 per month. It was on seeing his
qualifications that he was recommended for emergency commission by his
commandant, Colonel Ayub Khan (later General Ayub Khan, the president of
Pakistan). After the war ended, my father was recommended for an
engineering course at the College of Military Engineering in Kirkee (now
Khadki). He added the engineering degree also to his qualifications—this,
after being a student of Indian philosophy! My mother had no formal
education; she brought us up imbibing in us the values of honesty and
righteousness. Quality education was provided to each of us, and we joined
government service—my elder brother joined the army after completing his
engineering degree, and my younger brother and I joined the IAS. While I
had been allotted to the Nagaland (and then the Kerala) cadre, my brother
was allotted to the Manipur-Tripura cadre. Despite the fact that in my batch
alone, about half a dozen officers got their cadres changed and moved to UP,
their home state, from other distant cadres, my father never even
contemplated to attempt a cadre change for either my brother or me. Where
was the question of entertaining caste considerations for a true soldier who
spent his lifetime’s earnings educating his children?
It was because of the values inculcated in me by my parents, and also
because of the unstinted and unwavering support I got at home from my wife
Geeta—who is most unequivocal in her belief that one cannot shirk one’s
duties, and one must carry out one’s responsibilities with absolute sincerity—
that I could forbear the acerbic remarks aired in the media, and yet maintain
sincerity of purpose.

On 11 October 2011, I had been invited by the Sardar Vallabhbhai Patel

National Police Academy to address a combined audience of its 2010 officer
trainees and officers at the mid-career level. I took the early morning flight
for Hyderabad from Delhi. In the flight I saw the Hindustan Times; its lead
headline on the first page read: ‘India Inc Says Scams, Corruption Hitting
Growth’. The newspaper mentioned that in January 2011 a small group of
like-minded, prominent industrialists and corporates had written an open
letter to the prime minister about their concerns regarding the state of affairs
in the country, drawing attention towards growing governance deficit,
galloping inflation and environmental challenges. However, despite repeated
pleas made by them, the prime minister and the finance minister, Pranab
Mukherjee, brushed aside the issues. In another open letter to the prime
minister, eminent personalities such as Deepak Parekh, Azim Premji,
Jamshyd Godrej, Anu Aga, and Justice B.N. Srikrishna urged that concerted
action be taken to put an end to episodic corruption and speed up decision
making. Their observations indeed painted a rather grim picture of
government action and functioning.
After landing in Hyderabad, where the Telangana agitation was at its
peak, I found officers narrating horrible instances of the situation prevailing
in the government and within the state. I was told that the state civil
secretariat had been closed due to agitations, not permitting entry even to
ministers and dignitaries, who had to use the rear gates. About 132 local
trains had been cancelled and Andhra State Road Transport Corporation
(APSRTC) buses could not ply freely. All private vehicles in Hyderabad city
were being forced to ply with the ‘AP’ number plate covered by a ‘T’ number
plate (T standing for Telangana). Most distressingly, educational institutions
had been shut down. In fact, in one particular daycare school which was
found to be functioning, the agitators barged in; taking offence at a lady
teacher who was conducting a class, they scratched the letter ‘T’ with a blade
on her palm in the presence of all the nineteen students! Could there be a
worse display of the breakdown of the state machinery? Was this not the
‘Talibanization’ of the state government?
In my talk delivered to the officer trainees in the afternoon, I drew
attention towards these incidents. I said:
Today, we are facing a testing time in the history of our nation. The
quality of governance is below par and subject to severe criticism.
There has been an erosion of people’s faith in government. Their
confidence in public institutions has declined. National trust in
bureaucracy including the police force has collapsed. The integrity
and professionalism of the civil servants are being questioned. It
often provides very poor testimony of our capabilities if members
of the All India Services allow themselves to be used, if not as
facilitators, certainly as a medium for wrongdoing, by others. This
has brought the credibility of the government to the lowest since
Independence.17
I then went on to urge the officers to lead the process of change, so the Indian
bureaucracy could regain its ‘steel frame’ image, and there could be trust
once more in the government.
Obviously this talk evoked extensive media coverage. I had barely
landed back from Hyderabad that evening than all wires were narrating
excerpts of the talk, with the usual government apologists airing their views
on what was correct and not so correct for a person occupying a
constitutional position to say in public. The freedom of speech of the Indian
democracy is such that even a first-time MP finds that he can run down an
officer with forty years of experience. By the following morning, all of them
were waxing eloquent on how every government official must go around the
country with a finger on his lip, with his eyes shut and ears plugged, such that
he sees no wrong, hears no wrong—and if perchance he sees anything, he
never talks about it.
In my defence, I had only stated the obvious. I was speaking to a group
of police officers and was calling a spade a spade and doing so as the CAG of
the country. Why was that wrong? Could I stand before the audience, paint a
rosy picture of the bureaucracy, deliver homilies, and give a pat on their
backs for all that the public was saying about them? And in the process, have
them laugh behind my back and wonder at the hypocrisy of senior officers in
the bureaucracy?
Since, among the voices emerging from the government, there was also
Prime Minister Manmohan Singh’s faulting my comments in the police
academy, I decided to call on him. My meetings with Dr Singh have always
been very cordial; indeed, they have been a learning experience. It was the
same this time too. The prime minister was of the strong opinion that people
holding positions such as mine should not be airing adverse opinions. I
painstakingly explained to him the situation in Hyderabad, to which the
trainee officers were privy. It was a situation where the writ of the
government was virtually ineffective. All this had left the young officers in a
very confused state of mind. They were getting the wrong signals.
This was also around the time when whispers were going around that the
CAG was targeting the government, as the CAG himself had political
ambitions. Speaking to journalists on 31 August 2012, which was after the
coal block allocation report had been presented to Parliament, Digvijaya
Singh, a former Congress chief minister of Madhya Pradesh, reinforced this
rumour, drawing a parallel with T.N. Chaturvedi, a former CAG who later
joined the BJP; he even went on to ask if Vinod Rai wanted to become the
prime minister.18 I need not get into an analysis of such statements, which
merely highlight the use of diversionary tactics, a bankruptcy of credible
arguments to defend government actions, and a propensity to shoot the
messenger.
However, we do need to analyse the constitutional protection offered to
such constitutional appointees as the CAG, the chief election commissioner
(CEC), or the chief information commissioner. The Indian Constitution
provides for our fundamentals rights. Institutions as those mentioned above
have been created as establishments of horizontal accountability, and to
ensure checks and balances within the parliamentary democratic setup.
However, as against judicial privileges provided under the Constitution—
such that blanket criticism of judicial pronouncements is assumed to be a
breach of judicial privilege attracting contempt of court—the CAG has no
such cover. This, despite the fact that in a 1991 judgement, popularly known
as the Veeraswamy judgement, the Supreme Court held that the Constitution
had reposed such faith in the stature, honesty and integrity of its judges, the
CAG and the CEC, that they were never intended to fall within the ambit of
the Prevention of Corruption Act. However, such a provision does not suit
the political class who are under tremendous pressure due to the perceived
wrongdoings of their own ilk.
An immediate example that comes to mind is that of 2G spectrum
licensing. The CAG concluded an audit of the allocation of 2G spectrum
licenses. Its findings were repudiated, and a virulent attack was launched on
the constitutional body. However, no such attack could be orchestrated
against the Supreme Court, which had cancelled all 122 licenses issued by the
government. This is obviously since the court can, and has, hauled all such
scurrilous elements for contempt. There is sadly no such provision to protect
the audit findings of the CAG, and personal attacks seem to have become the
pattern as of now.

THE MANDATE OF AUDIT

Against this backdrop of barbs and criticism, I believe it’s important to

analyse the mandate of the CAG. Gopal Subramaniam, a former solicitor
general, said:
 The CAG has the mandate to scrutinize transparency in
procurement and the way in which things have been done, acting
like a watchdog. If a watchdog is not allowed to criticize, then what
kind of parliamentary accountability will you ever get? Its reports
are based on records and policies of the government placed before
it. It is not expected to frame an alternative policy, but we must
understand that the CAG can certainly test the present policy and
the way it is being implemented. That is certainly within its
mandate. It can certainly go into the question [of] whether the
government of the day has correctly and in an accountable manner
carried out a pure process of execution.19
Does this not clearly establish the CAG’s constitutional position?
Unfortunately, the government continues to be guided by its own in-house
lawyers.
The government, appropriately so, sought a presidential reference in the
2G scam case when the Supreme Court decided to cancel the licenses of 122
companies, which would have ramifications for various sectors. The court in
its judgement on 27 September 2012 clarified:
Auction despite being a more preferable method of
alienation/allotment of natural resources, cannot be held to be a
constitutional requirement or limitation for alienation of all natural
resources and therefore, every method other than auction cannot be
struck down as ultra-vires the constitutional mandate.20
This clarification brought forth glee of an unprecedented variety on the faces
of the UPA ministers. The telecommunications minister, Kapil Sibal stated:
‘We are happy that the government can now take decisions without fearing
the consequences from other constitutional authorities.’21 Considering that
there are only two constitutional authorities, and the Supreme Court (one
among them) had already given the verdict, why not name the other?
 The Glee Over a Failed Auction
Courtesy: Business Standard

Meanwhile, another petitioner had separately filed a petition urging the

Supreme Court to declare that performance audits, as conducted by the CAG,
were ultra vires of the Constitution. On 1 October 2012, dismissing the
petition, the Supreme Court observed:
CAG is not a munim [accountant] to go into the balance-sheets.
The CAG is a constitutional authority entitled to review and
conduct performance audit on revenue allocations relating to the
centre, the states and the union territories […] and examine matters
relating to the economy and how the government uses its resources.
[…] Don’t undermine the office of the CAG.22
This verdict has clarified the CAG’s mandate. For a better appreciation of
this, let me quickly walk you through the provisions. The existence and
mandate of the CAG emanates from Articles 148 to 151 of the Constitution.
In particular, Article 149 stipulates the duties and powers of the CAG as may
be prescribed by or under any law made by Parliament. And in the exercise of
powers conferred under this Article by the Constitution, Parliament has
promulgated the CAG’s (Duties, Powers and Conditions of Service) Act of
1971.
Section 23 of the Duties, Powers and Conditions of Service (DPC) Act
states that the CAG is authorized to make regulations for carrying into effect
the provisions of this Act in so far as they relate to the scope and extent of
audit function. Further, in the exercise of the powers conferred to the CAG
under Section 23 of the Act, regulations on audit and accounts were framed
and were notified in the official gazette on 20 November 2007. All this had
happened before I had taken charge as the CAG.
Now Chapter 3 of the Regulation lays down that the scope and extent of
audit shall be determined by the CAG. The scope of audit is defined in
Chapter 13 stating:
Within the audit mandate, the Comptroller and Auditor General is
the sole authority to decide the scope and extent of audit to be
conducted by him or on his behalf. Such authority is not limited by
any considerations other than ensuring that the objectives of audit
are achieved.
It also states that the CAG undertakes audits which are broadly categorized as
financial audit, compliance audit and performance audit.
It is essential here to explain the difference between the three different
types of audit. Financial audit is to verify whether the financial statements,
which are the accounts of the government, are properly prepared, complete in
all respects and are presented with adequate disclosures. Compliance audit
examines the transactions relating to expenditure, receipts, assets and
liabilities of the government, to ascertain whether the provisions of the
Constitution, the applicable laws and rules, including instructions issued by a
competent authority, are being complied with. Both financial and compliance
audits are undertaken by chartered accountants also. The third type—
performance audit, which only the CAG is entitled to conduct—is an
independent assessment of the extent to which any organization, programme
or scheme operates economically, efficiently and effectively. Thus,
performance audit goes beyond financial and compliance audits and
comments on the outcomes of the schemes too.
Would this not sufficiently clarify the mandate of the CAG? If there
were still some doubts in the minds of those speaking on behalf of the
government, all that was required was for some of them to consult an office
memorandum issued by the ministry of finance on 13 June 2006 [Appendix
2]. This addresses at least one clarification which had been sought, namely
whether performance audit falls within the scope of audit by the CAG under
the DPC Act 1971. The memorandum states that performance audit, which is
concerned with the audit of economy, efficiency and effectiveness in the
receipt and application of public funds, is deemed to be within the scope of
audit by the CAG of India, for which auditing guidelines (drawn up by the
CAG) already exist. This clarification should have felled the arguments of
those who were looking for the slightest toehold, the slightest chink in the
armour of the CAG. Unfortunately, this was not to be, and hence the sniping
continued.

The CAG’s Audit Act dates back to 1971. The 73rd and 74th amendments
had not been passed, and hence the Audit Act provided for an audit coverage
of conventional government departments or public enterprises, but not
delivery models such as private-public partnerships, non-governmental
organizations and panchayati-raj institutions. In a presentation to the planning
commission in 2009, the CAG’s office demonstrated that more than half the
expenditure of the Central Plan Fund for different schemes did not fall within
the automatic legal audit mandate of the CAG. As such, in 2009, roughly
60,000 crore, which was the Central Plan Fund allocation, was not under the
audit ambit of the CAG. As for the schemes passed by Parliament, these were
to be audited by chartered accountants. Even if it were to be presumed that
chartered accountants would conduct a rigorous audit, their report would not
reach Parliament. Hence Parliament would not get any assurance that a major
part of the Central Plan Fund expenditure has been properly utilized. This
fact surprised the planning commission members who felt that henceforth all
central government funds being released would carry the instruction that all
such funding would be auditable by the CAG.
In September 2009, we made a similar presentation to Pranab
Mukherjee, then the finance minister. The finance minister appreciated this
fact and wanted an amendment to be proposed to the DPC Act to enable a
CAG audit into all Central Plan expenditures. Additionally, three more
proposals were made to the finance minister. First was regarding the response
time to audit queries. The present provision in the act is merely that audit
queries will be replied ‘with all reasonable expedition’. It does not specify a
time limit. Hence, if the department being audited chooses to procrastinate or,
in fact, not respond, audit can merely issue reminder letters and nothing
more. Compare that to the common man’s rights under the Right to
Information (RTI) Act—an answer within thirty days, failing which the
departmental official is liable to face punishment. Our request: why not
similarly empower the audit office?
Second, public-private projects, schemes being implemented under
panchayati-raj institutions or through societies specially constituted for this
purpose (such as the National Rural Health Mission) could be brought under
the automatic legal audit mandate of the CAG by a suitable amendment in the
statute.
The third major amendment that was proposed had to do with the DPC
Act, which provides for the government to table in Parliament any audit
report received from the CAG ‘as soon as may be after it is received’. No
time limit is prescribed. Not surprisingly, many a times the tabling of audit
reports has been inordinately delayed, both at the central and state levels. The
audit report of the Delhi metro was delayed by a year after the CAG gave it to
the government. Reports given to the Maharashtra government were not laid
in the house for months altogether. This had to be remedied. Our proposal:
rather than rely on the good sense of the government to lay the report ‘as
soon as may be’ after it is received, a time period of seven days be prescribed
for laying it after it is received from the CAG. Not an unreasonable demand,
in my opinion.
The finance minister certainly did not feel that the demands were
inappropriate. He advised us to send the proposed amendments to the DPC
Act for the government to process before putting it through Parliament. We
did; we sent the proposed amendment in the form of a new act which would
replace the old, outdated one. Sometime in 2010, the ministry of finance felt
that a repeal of the 1971 act and the introduction of a new act would be time-
consuming; hence only those amendments that were absolutely necessary
could be proposed for early placement in the house. We accepted that
suggestion. The aforementioned amendments were sent to the ministry of
finance in October 2010. That is where they lie. The CAG’s office made
numerous enquiries. I wrote reminder letters to finance ministers, with no
response. No finance minister has had time to reply. I wrote to the prime
minister. Silence. I have retired. The Indian audit and accounts department
still hopes that its auditors will be empowered to the extent that the
government has empowered the common man.

The Indian audit and accounts department’s mandate extends to roughly

2,50,000 auditable entities. Given that the department clearly does not have
the resources, manpower and, at times, desire to audit all entities, it largely
targets mainstream programmes which have a high degree of materiality and
sensitivity. Thus—and based on a proper risk assessment—programmes
involving huge sums of money, or in critical sectors, or those which have
come up for public and parliamentary attention usually fall within the audit
plan. The department has the discretion to decide on the areas to be audited.
In this attempt to focus on the macro picture, the department conducts about
60,000 audits in a year, focussing on the ‘millions’ instead of the ‘thousands’.
Once audit observations have been made, the executive has the option of
either stonewalling them or making mid-course corrections by incorporating
them in the agenda of ongoing programmes. In the event that the observations
are ignored, society at large loses: the efficiency of public expenditure
declines and the competitive edge is lost. In the eventuality of a department
or institution actively engaging with audit to explore ways and means of
incorporating the observations and upgrading the machinery, both the parties
bring value to the table and thereby improve the efficiency of the delivery
process. In this process, the government’s credibility and legitimacy also
improves.
Ahead of every performance audit, detailed guidelines are prepared. The
audited institution is then sensitized about these guidelines through the
process of an ‘entry’ conference, held by the leader of the audit team with the
secretary of the department being audited; the audited institutions have the
liberty of making observations and providing guidance to the audit team. The
value of an audit can be enhanced if these entry conferences are taken
seriously by the audited institutions. On completing the audit and after
detailed multilevel discussions within the audited organization, the audit team
puts together its observations. Before these observations are concretized as
the ‘audit report’, they are shared with the audited institution through the
‘exit’ conference, to explain the audit findings and provide the secretary of
the department an opportunity to express his apprehensions, offer factual
corrections and also ensure that his department is privy to all audit
observations. These are recorded and jointly signed. In instances where these
conferences have been taken seriously, avoidable observations have been
dropped and only those which lead to the improvement of the delivery
process are included. Unfortunately, in about 50 per cent of cases, these
conferences have not been scheduled (by those audited) within the specified
timeframe, resulting in severe differences of opinion between the audited and
the auditor after the audit report has been prepared. Long term efficiency and
governance objectives will be achieved if these conferences are made more
meaningful.

PUBLIC AUDITORS AND SOCIAL OBLIGATION

Considering the present climate in civil society of holding its government to

account, we in the CAG actively introspected whether our mandate was
merely to conduct audits, prepare a report, place it in Parliament, and full
stop! We wondered if Parliament and, in fact, the public at large expected us
purely to be accountants doing arithmetic over government expenditure. This
was when the government of the day believed that we were exceeding our
mandate which, according to them, was to play the role of simple accountants
and auditors. We were being advised to steer clear of auditing policy
formulation.
To understand our role better, we studied the constitutional position of
supreme audit institutions in certain other parliamentary jurisdictions. All
democracies around the world have provided for an auditor general to
oversee the government’s spending. In most of these countries, such auditors
general are constitutionally mandated to conduct an audit of government
departments and report their findings to Parliament. In India, too, the
Constitution has provided such a mandate to the CAG. The obvious question
in that case is—if the role of a CAG is meant to be constricted, why would
constitutions worldwide appoint auditors general and give them
independence, freedom from the executive, and accord them a high
constitutional position? Indeed, our Constitution, too, seems to have
envisioned CAGs as more than mere accountants.
This discovery is especially pertinent in the present-day context. Even as
there is a distinct paradigm shift in civil society, with the public getting more
vocal, there is need for a paradigm shift in the model of governance. If this is
the case, should there not be a paradigm shift in the objectives and approach
of public auditing? Should not public auditors seek to sensitize public opinion
on audit observations, especially so in social sector audits pertaining to rural
health, primary education, air pollution, environment and drinking water?
After much introspection and analysis, we felt that it was imperative to
reposition the public auditor and help him deal with the rapidly-changing
environment in the country. We introduced a three-fold change.
First, we premised our audits on the firm belief that we are as much
engaged in the business of upgrading governance as any other agency in the
administration. Our audits underwent a culture change as a result of positive
reporting: from being a bunch of fault-finders who were often wiser in
hindsight, we started recognizing and reporting good practices observed
during an audit.
Second, to ensure widespread dissemination of our audit observations—
both positive and negative—on social sector issues such as sanitation, rural
health, primary education, midday meal schemes, etc., which would be of
interest to the common citizen, we summarized the salient observations of
our reports into small booklets which were easy to understand for a general
readership. We distributed these pamphlets, referred to as ‘Noddy books’, to
the media, legislators, college students, citizens’ groups, non-government
organizations and the like. These small pamphlets explained the gist of audit
findings in about twenty pages—the pages being in the style and size of Enid
Blyton’s Noddy series—and also contained a CD which had the complete
original report in English and the local language. This exercise was
undertaken in the firm belief that an awakened citizenry, once sensitized to
the inadequacies of government departments, would exert pressure on these
departments by forming vigilante groups, thereby ensuring better delivery of
government services. The Noddy books proved to be a huge hit even among
legislators.
Concurrently, we started working on the look and feel of our audit
material. Audit reports of the early variety had a sarkari (or government
document) appearance. They were unattractively printed and did not evoke
any desire in the common man to read them. We began to improve the
packaging of our reports. We presented our material such that it was easily
comprehensible to the layperson, and was reader friendly. Visually appealing
graphs, charts and photographs were introduced for better appreciation of the
issues covered. Most importantly, for dissemination of good practices
observed during the course of audit, we displayed such items prominently in
our reports.
Third, in our quest for deeper insight and more widespread coverage of
social sector issues, we supported the concept of a social audit. Recognizing
that our core competencies were limited to conducting audits, we engaged
with credible citizens’ groups working in specific areas to avail of their local
knowledge. This not only gave us better outreach, and helped us appreciate
the efficiency of government schemes more thoroughly, but also provided
these agencies with a more credible voice in the legislature. In a bid to
engage actively with citizens’ groups, we gave prominent coverage in the
media of our intent to conduct audits in specific places and sectors and
invited suggestions as well as information about these spaces. This evoked a
positive response. It helped us engage with stakeholders, move our reports
from the fringes to centre stage; the stakeholders, in turn, also helped the
auditors produce more well-rounded audit reports. For example, doing an
audit of ‘water pollution in India’, we engaged with people like Rajendra
Singh of Rajasthan and Sunita Narain of Delhi, and NGOs like Arghyam in
Bangalore. This offered us deep insight into the ground realities; as mere
auditors, we may not have been able to capture these facts on our radar
without their help. We had similar experiences with those working in the
health and primary education sectors.
In recent years, the focus of audit has undergone a major change. Due to
massive outlays on socio-economic development activities, the attention has
shifted towards the area of ‘performance audit’, which assesses the
operational performance of the government against pre-established goals, and
judges its accountability in the delivery of programmes and services that
affect the well-being of fellow citizens, like food, health, education and
employment. Performance audits, therefore, provide an early warning system
to the administrator and help the government make mid-course corrections.
To ensure that we were on the right track while initiating these changes,
we looked at trends within other supreme audit institutions in different
geographies. We found that, worldwide, the inclination was to make
government functioning more transparent. In this context, legislatures in
other democracies have empowered their auditors general with the mandate
to hold the government financially accountable through performance audits
of their programmes and activities. A case in point is that of the USA. In July
2004, in the USA, several proposals were introduced in the 110th Congress to
augment the mandate of the external auditor. The erstwhile general
accounting office of the USA was redesignated as the government
accountability office to reflect the agency’s evolution and additional duties.
Most of the agency’s work today involves programme evaluations, policy
analyses, and legal opinions and decisions on a broad range of government
programmes. Today, most government accountability office blue-cover
reports go beyond the question of whether federal funds are being spent
appropriately, and ask whether federal programmes and policies are meeting
their objectives and the needs of society.
There was a similar case in Estonia where the Tallinn city body
contested the mandate of the national audit agency to audit its activity in the
housing sector. After protracted litigation over four years, the Supreme Court
maintained that it was not unconstitutional for the national audit agency to
supervise local governments. The court held that local bodies function for the
welfare of the people and the average citizen needs to be kept informed about
the efficiency of their operations through an independent audit procedure.
Such worldwide trends have reaffirmed our belief that supreme audit
institutions are also mandated to sensitize public opinion with their audit
findings.
It is then that we commenced pushing the envelope and going beyond
conventional and conservative practices. This evoked very sharp resistance
from the executive. However, this was expected and we had factored it in.
Statements were issued that we were exceeding our mandate; comments were
made that such ‘activism’ amounted to interference in policy formulation;
remarks were passed that we were misleading public opinion. However, we
continued to tread the new path in the belief that the final stakeholder is the
public at large.
In taking such initiative, we were no doubt aware that, as an institution,
we would be subjected to scrutiny. We ensured objectivity and transparency
in the conduct of our audits; we also maintained zero tolerance to a lack of
probity. We ensured that our human capital—our auditors—were
professionally outstanding and equipped with the latest trends in public
auditing. Our priority was to strive for service excellence and quality within a
self-defined code of ethics and morality.
After much deliberation and comparing of notes with our sister
organizations in other democracies, I came to understand that the role of the
CAG is not merely to audit the expenditure of the government. Rather, the
CAG’s mandate is to hold the government financially accountable to the
legislature. Our professional specialization is to point out sub-optimality in
policy formulation, lacunae in policy implementation, and to provide
constructive suggestions for overcoming inadequacies. Since in the times to
come, governance will have to become participative and a discerning young
citizenry will seek a voice in administration and policy formulation, it
becomes incumbent upon audit to sensitize public opinion regarding its
findings.
The ability to call a spade a spade does not come easy. It comes with its
own pitfalls. Audit cannot assume the role of cheerleaders, as most of those
in the government appear to be doing. In fact, audit will be failing in its duty
if it does not inform the legislature, and through it, the people, of the true
picture of government spending and the outcomes of the schemes intended to
benefit the citizens. It is time to take on the role of the naive and precocious
child, who displayed absolute transparency when he exclaimed, ‘But he has
nothing on!’, as the emperor passed him by in ‘new clothes’ (Hans Christian
Andersen, ‘The Emperor's New Clothes’).

—————————
4The steering committee, set up by the International Organisation of Supreme Audit Institutions
(INTOSAI), a global membership organization of auditors general of 191 countries, seeks to address
common issues, and garner resources from various bilateral and multilateral agencies for strengthening
the capacity of supreme audit institutions in various countries.
5‘CAG Report on 2G Had a Detrimental Effect on Growth: Manish Tewari’, The Economic Times, 27
September 2013.
6Rohini Singh and Soma Banerjee, ‘I Haven’t Seen CAG Function Like This in 45 Years of My
Career: Sharad Pawar’, The Economic Times, 14 June 2012.
7At the Economic Editors Conference, October 2011.
8Saubhadra Chatterji, ‘Finance Ministry Gives Clean Chit to “Non-Partisan” CAG’, Hindustan Times,
24 December 2012.
9Rajesh Ramachandran, ‘Money Was Made Even From Kargil Coffins’, The Times of India, 11
December 2001.
10See ‘Coffins Star in Kargil Charade’, The Telegraph, 25 January 2002.
11At the Mail Today Education Conclave, 10 October 2013.
12See Ram Jethmalani, ‘Evasive Denials Proved Bofors Guilt’, The Sunday Guardian, 21 May 2012.
13Mahendra Singh, ‘Untrained Staff Auditing CAG Reports, Montek Says’, The Times of India, 13
August 2013.
14Ibid.
15At the Fifth Annual Convention of the Central Information Commission, 13 September 2010.
16Aditi Phadnis, ‘Lunch with BS: Jairam Ramesh’, Business Standard, 20 September 2013.
17See ‘Govt’s Credibility at its Lowest: CAG’, Governance Now, 12 October 2011, in
<http://www.governancenow.com/news/regular-story/govts-credibility-its-lowest-cag>, accessed on 15
July 2014.
18See ‘Digvijay Singh Targets CAG Vinod Rai’, DNA, 31 August 2012.
19Vinay Kumar and Sujay Mehdudia, ‘CAG Has Not Overstepped Its Mandate, Says Former SG’, The
Hindu, 27 August 2012.
20See ‘Supreme Court Opinion Gives Comfort to Government in 2G and Coalgate Scandals’, Daily
Mail, 27 September 2012.
21See ‘SC Says Auction of Natural Resources Not Mandatory, Govt Says Free to Act Now’, IBNLive,
27 September 2012, in <http://ibnlive.in.com/news/sc-says-auction-of-natural-resources-not-
mandatory-govt-says-free-to-act-now/295814-61.html>, accessed on 15 July 2014.
22‘Don’t Undermine Office of CAG, Says Supreme Court’, The Hindu, 1 October 2012.
 3

MEDIA POLICY

n the morning of 22 March 2012, on returning from a leisurely game of

tennis, I opened The Times of India. The first-page headlines stunned me. It
read: ‘Government lost 10.7 lakh crore by not auctioning coal blocks: “CAG
Draft Report” estimate of “undue benefits” to firms is 6 times 2G loss’. It is
rather astounding how such reports get into the hands of the media—in this
case, a report which had not been seen or approved by the CAG and was in a
very preliminary stage.
As per performance auditing guidelines, as you may recall, after the exit
conference, the audit department shares the draft report with the audited
agency. This is invariably the stage when the report leaks. Such leaks raise
many issues. Firstly, quite often the final report can be different, as after
viewing the department’s responses, substantive changes are made. It is only
then that the report is put up to the concerned deputy CAG and the CAG.
Hence significant changes are likely to come about in the draft. Secondly,
there is the oft-repeated accusation against the CAG that the department leaks
the report. It beats me why the officers would leak the report and thereby
steal their own thunder.
The Times of India report had me very worried, more so as Parliament
was in session and much would be said on both sides following the leak. My
reaction to the situation was to come clean on the episode and have it placed
before Parliament. On reaching office, I wrote out a letter to the prime
minister [Appendix 3] indicating the preliminary nature of the findings of the
leaked draft and the fact that the draft had not been seen by me as yet. I also
expressed my extreme distress at one particular fact, a fact which I had
repeatedly represented to government—our helplessness in taking action
against the media for brazenly displaying leaked reports and taking credit for
having such reports in their possession. As per Article 151 of the
Constitution, the CAG prepares audit reports to be placed in Parliament. It
should constitute a breach of privilege of Parliament if such reports come into
the public domain earlier. My anguish regarding this had also been discussed
with the finance minister, the speaker of the Lok Sabha and the law minister.
The problem was compounded since the central information commissioner
(CIC) had ruled that we were covered under the RTI and were thus bound to
share our audit findings at each phase with any person seeking information.
Hence, a stage had come when there was no question of leaking reports—we
were officially sharing it with the media and everyone else! The government
had not taken any action to remedy the situation, and everyone in the
government was taking potshots at the CAG for supposedly leaking such
reports.

On 12 January 2011, Mail Today carried a news item titled: ‘Cong Tells
CAG Not to Teach Rules to MPs.’
What was the CAG’s crime? The following press release:

PRESS RELEASE
Office of The Comptroller & Auditor General of India
10, Bahadur Shah Zafar Marg
Statement of the office of the Comptroller & Auditor General of India
on disclosure of its Reports
NEW DELHI
12 January 2011
The following needs to be put in proper perspective as there appears to
be an incorrect perception in the public mind:
 Under Article 151 of the Constitution, the Reports of the CAG of India relating to the accounts
of the Union are submitted to the President who causes them to be laid before each House of
Parliament. In pursuance of the mandate provided to the C&AG under this Article, the
Performance Audit Report on the issue of licenses and allocation of 2G Spectrum by the
Department of Telecommunications was placed in the Parliament on 16th November, 2010.
Once the Report has been placed in the Table of the House, it becomes a public document. As
per the procedure being followed from 1980s the Officers of the C&AG then hold a Press
Conference in the afternoon to explain their findings on that particular Report, to the media. In
this case the Press Conference for briefing the media on the Audit Report on the issue of licenses
and allocation of 2G Spectrum was held by Smt. Rekha Gupta, Dy.C&G in the office after 3 PM
on 16th November, 2010 itself, after the report was placed in the Parliament. The Report was
simultaneously placed on the Website of the Comptroller and Auditor General.

DISCUSSION OF REPORTS OF C&AG

All Reports of the C&AG are automatically transmitted to the Public Accounts Committee.
However, not all Reports are discussed by the PAC.
As per Para 1.12 of the Rules of Parliamentary Procedure, ‘When any matter is under
consideration of a Parliamentary Committee and the Committee is holding its sittings for that
purpose, no person including a Member of Parliament should make or publish a statement or
comment about that matter. Making public comments on the matter which is being considered by
a Parliamentary Committee is highly improper and may even amount to contempt of the House’.
Later, it is in obedience to this Rule that the C&AG, who is an important adjunct of the PAC and
attends all its meetings, did not make any comment on media reports on comments made by
others on the report of the 2G Spectrum allocation, as it was under discussion of the PAC. The
meetings of the PAC on the 2G Spectrum Audit Report began from 27th Dec. 2010

The great folly committed by the CAG was quoting from Parliamentary
Procedure: Law, Privileges, Practice and Precedents by Subhash C.
Kashyap. The background was that the PAC meetings on the 2G report had
commenced. After every meeting, various interpretations on the discussions
that took place inside would emerge in the media. Every such day, the media
would attempt to corner us for the real story behind the discussions. When I
nixed the requests of journalists they wondered why I was not speaking up,
despite the fact that every MP present in the meeting was giving out a ‘byte
or two’. It was then that I put out this press release, quoting paragraph 1.12 of
the Rules of Parliamentary Procedure, then making the CAG’s point of view
clear against the last bullet, namely that the CAG did not make any
comments to the media. But then, who bothers reading things—we are more
than eager to shoot our mouths off.
To complicate matters, the prime minister, in his interaction with
newspaper editors on 29 June 2011, made the following statement:
Well, I think the CAG also leaks. It is not the function of the CAG.
It has never been the case that the CAG has held a press conference
as the present CAG has done. But nobody is commenting on all
this. It is not right for the CAG to go into issues which are not the
concern of the CAG, it is not the CAG’s business to comment on
policy issues. I think they should limit themselves to the mandate
given under the Constitution. We are now a permissive society, I
think if the media can get away with murder so can the CAG.23
Now, if first-time MPs make statements, a person with over forty years of
experience in the government will let it pass—only prudence dictates so.
However, when a prime minister states something which is functionally and
fundamentally incorrect, how can one ignore it? I then decided that the least I
owed the prime minister was to inform him that the briefing he had been
given on the issue, irrespective of the source, was incorrect. I had been
travelling when he had held the press conference. On my return, with the help
of my colleague, Alok, I wrote to the prime minister on 5 July 2011. The
existence of this letter was only known to Alok and me; hence, there was no
possibility of it reaching the media. We did not give the letter to the Joint
Parliamentary Committee (JPC); the letter was given to the JPC by the PMO.
Since this letter has now entered the public domain, I have no qualms about
reproducing it today. The contents follow:
Since I had chosen to put this down in writing—and of all the people, to the
prime minister of the country—I had to be sure about my facts when making
these assertions. The same evening, I got a call from the prime minister’s
residence asking to see him the next day. Since I was travelling to Mumbai
the next day—6 July 2011—I called on him at 7 p.m. on 7 July 2011. The
prime minister asked me as I entered his room, ‘I hope you do not want a
reply to your letter?’ I replied that I could hardly demand any such thing of
the prime minister. As usual, he was very gracious and let me explain each
one of the assertions that I had made in my letter.

When I took charge as the CAG in January 2008, the department had the
assistance of Virendra Kumar as the media advisor. He soon retired, and was
succeeded by B.S. Chauhan, who was moving out of the ministry of finance.
The CAG’s media department was a one-man setup. I recall that after a
couple of reports were placed in the house in the early years, there was a
huge hue and cry from the usual interested quarters that the CAG had
engaged a media company and had a huge media department. All we had was
one B.S. Chauhan, and no trace of any media company, not even when the
department was celebrating 150 years of its existence in 2010.
When voices of criticism multiplied and rose in pitch, I delved into the
genesis of our media policy. There is a whole chapter on media policy in the
thematic history of the CAG of India for the period between 1990 and
2007.24 Written by Vijay Kumar, who is a retired deputy CAG, it traces the
history of the CAG’s interaction with the media from the 1950s, also quoting
A.K. Chanda, the second CAG of Independent India, who is reported to have
maintained that media coverage of the CAG’s reports was a healthy trend in a
developing parliamentary democracy; this, in turn, added to the responsibility
and need for caution on the part of government auditors. Vijay Kumar
records that during CAG V.K. Shunglu’s time, several instructions were
issued to the XIX Conference of Accountants General in November 1996,
recommending that the accountants general may call for a press conference
after the audit report is tabled, to help apprise the media of the highlights of
the report.
Press conferences have led to very interesting situations. In 2004, a writ
petition was filed in the Madras High Court against the CAG and his
accountant general of Tamil Nadu, by an All India Anna Dravida Munnetra
Kazhagam (AIADMK) MP of the Rajya Sabha, for holding a press briefing
and criticizing the state government for a loss of several crores during 2001-
2004. He also alleged that by holding this press conference, the accountant
general had infringed the privilege of the Tamil Nadu legislative assembly.
The honourable judges, while dismissing the writ petition, had a word of
advice for the petitioner. The judgement said that making untenable
allegations against the accountant general of Tamil Nadu in vituperative
language, without any basis, would not be encouraged. The court held that
the petitioner’s impressions were illusory. It also advised the accountant
general not to criticize but to factually brief the media. Thus the judgement
upheld the right of the accountant general to hold a press conference to
disseminate the findings of an audit report which had come into the public
domain, as it had already been tabled in the house.
On 16 March 2006, this judgement prompted the then CAG V.N. Kaul
to issue comprehensive guidelines on holding press conferences by
designated officers of the Indian audit and accounts department. This points
to the fact that such press briefings were not started by me; indeed, I have not
made any change to the 2006 policy during my tenure. I have, in fact, never
held a press briefing. As decided in 2006, the concerned accountants general
and deputy CAGs hold press conferences. Hence, my assertion to the prime
minister in my letter of 5 July—that press conferences after reports have been
tabled are the norm and that I personally have never held a press conference
while in office—was entirely true.
For a better appreciation of the media policy issued by CAG V.N. Kaul,
I have annexed the March 2006 instruction [Appendix 4]. Vijay Kumar
further records that whilst the CAGs of the 1950s were somewhat
conservative about media interaction, over the years it was becoming
apparent that audit findings did not reach the larger public because the media
covered reports in a sketchy manner. Further, the PAC and the committee on
public undertakings (COPU) had severe time constraints and could not
deliberate on all the reports. Above all, the response of the executive to the
audit reports, or even to the PAC or COPU’s recommendations was
becoming quite lukewarm, and hence there was need for the wider
dissemination of such reports to the ultimate stakeholder, the public.
My contention is that once an audit report is placed on the table of the
house, it becomes a public document and comes into the public domain. If the
officers who conduct an audit do explain the report to the media for a clearer
appreciation of the findings, such dissemination eliminates any scope for
misinformation and skewed reporting. Handouts are given to the media which
very concisely and clearly explain the technical aspects, if any, of the
findings. All in all, this is a healthy practice which has been followed over
time. More importantly, it certainly is fair practice to widely disseminate
audit findings for an awakened citizenry to appreciate the efforts of the
government in the implementation of different schemes and programmes.
The public, after all, is the ultimate stakeholder and must be informed about
the implementation of social sector schemes in particular.

—————————
23Issued by the PMO, 29 June 2011.
24See Vijay Kumar, The Comptroller and Auditor General of India: A Thematic History, 1990-2007
(New Delhi: APH Publishing, 2008).
 4

THE CBI

Dear Shri Rai,

We have learned that a preliminary enquiry [PE] has been registered by the CBI in connection
with the appointment of Mr Atul Kumar Rai as CMD [chairman and managing director] of IFCI
in 2007. We understand that you are named in the PE and that the CBI is investigating whether
you as the then secretary, department of financial services, helped Atul Kumar Rai getting
relieved at a short notice to enable him to take up his job as full time director of IFCI. Your
comments please.
—An email received from Dheeraj Tiwari,
The Economic Times, New Delhi, 30 November 2011

had no clue about any such PE. After I received information from
journalist Dheeraj Tiwari, I called the director of the CBI, Amar Pratap Singh
on the RAX (the restricted exchange telephone provided only to senior
officials), asking him directly if any such PE had been registered and whether
my name had been mentioned in it. I need not remind readers that I was the
incumbent CAG at that point. Singh, in all fairness, did inform me that he
was aware of something against Atul Kumar Rai, but was sure that my name
did not figure in the PE. However, he promised to revert. And revert he did.
An officer soon came to my office with a copy of the PE. He, of course, had
no knowledge about how the PE had come to be registered, how the name of
a serving constitutional appointee had been mentioned, and with whose
clearances.
I found that the PE25 had been registered by the CBI on 21 November
2011 against:

1. Atul Kumar Rai, CEO and MD, IFCI, New Delhi

2. Unknown officials of the ministry of finance, New Delhi

Now what is the PE all about? It is best for me to quote directly from the
CBI information report:
A reliable source information has revealed that Shri Atul Kumar
Rai (IES 1985) had worked under Shri Vinod Rai (IAS 1992) in the
department of financial services (DFS), ministry of finance, from
November 2002 to May 31, 2007. Among other responsibilities,
Shri Atul Kumar Rai was also looking after the issues relating to
the sanction and disbursement of loans and grants by the
government to the IFCI, exploring various options for the
restructuring of the IFCI by way of inducting a strategic partner, its
possible merger with a PSU bank, and the restructuring of IFCI
liabilities towards PSU banks and insurance/financial institutions,
for a period of about four and a half years. Shri Vinod Rai was
nominee director from the Government of India on the IFCI board
from November 18, 2002 to August 20, 2005. Shri Atul Kumar Rai
succeeded Shri Vinod Rai as the government nominee director on
the IFCI board on August 21, 2005 and remained in the position till
May 31, 2007.
On February 5, 2007, Atul Kumar sought voluntary retirement
from the DFS on the grounds of attending to certain personal and
family matters at the earliest. The application of Atul Rai was
examined at various levels and forwarded to the secretary, financial
services, banking, Vinod Rai, who apparently helped Atul Rai in
getting relieved as soon as possible. Subsequently Amitabh Verma,
joint secretary (admin), ministry of finance, recorded on April 30,
2007:
‘Discussed with secretary (financial services). In view of the
budget session of parliament being in progress, it may be difficult
 to relieve Atul Rai immediately. Hence it has been decided to
relieve him with effect from May 31, 2007. Shri Rai has agreed to
this. May inform DEA [department of economic affairs, the cadre
controlling authority in the Indian economic services or IES].’
The information report concluded:
Thus, prima facie, by giving and accepting a false and backdated
declaration, and not insisting upon filling form 25 for commercial
employment, Shri Atul Kumar Rai, S-1 [suspect 1] with other
suspect officials of ministry of finance, Government of India,
committed grave misconduct.

On a simple reading of the first two lines quoted in the information report of
the PE, the target becomes clear. Indeed, this was the conclusion drawn by
the team of reporters at Business Standard, who, on 20 September 2012,
published an article titled ‘The Battle for IFCI’, with a subtitle that read: ‘Did
Atul Kumar Rai pay the price of being close to Vinod Rai?’ The report stated
that the government’s flip flop over IFCI and the perceived intransigence of
its CEO, Atul Kumar Rai,
could potentially wipe out 1,000 crore of stock-market wealth,
and, in a throwback to the 1970s, lead to the government acquiring
a perfectly healthy and profit-making financial institution after a
confrontation with the company’s management.26
Before I quote further from the Business Standard article, let me apprise
readers of an answer given by the finance minister to Parliament. While
replying to a question on IFCI in 2007, he stated that IFCI was not a public
sector enterprise. In a privilege matter, when Atul Rai was called upon to
depose before the privileges committee, Business Standard states:
The matter would perhaps have ended there had [Atul Kumar] Rai
not said in one of his depositions that IFCI wasn’t a government-
owned company and that he wasn’t a government servant. […] In a
deposition before the committee on August 9, 2010, R. Gopalan,
secretary, department of financial services, said the ministry of
corporate affairs was of the opinion that under the provisions of the
 Companies Act, IFCI was not a state-owned entity and that the law
ministry agreed with the view.
Meanwhile, in August 2010, the Comptroller & Auditor
General, or CAG, came out with a draft report that pointed out
huge irregularities in the allotment of inexpensive 2G spectrum to a
clutch of companies after Andimuthu Raja took over as the telecom
minister in 2007. The extent of the loss to the government, the
CAG report said, could be as high as 1.76 lakh crore. The nation
gasped in disbelief. Vinod Rai, a 1972 batch IAS officer of the
Kerala cadre, was the CAG when the report came out, as he is now.
Earlier he had been [Atul Kumar] Rai’s superior in the finance
ministry.
This is when [Atul Kumar] Rai’s case took a turn for the
worse. The government did a volte face. Through submissions to
the committee in October 2010 and January 2011, it said that IFCI
was under the government’s control. These submissions were based
on the opinion of the ministry of law which in turn had consulted
the attorney general on the issue. […]
Did Rai pay the price of being close to Vinod Rai? The
committee tried to find out if the two were related to each other but
couldn’t come to any conclusion. But finance ministry officials say
they were close—like chacha and bhatija (uncle and nephew).
Before he became CAG, Vinod Rai was secretary (financial
services) in the ministry of finance.27
This is an outsider’s point of view. I wish someone in the ministry of finance,
or the committee of privileges, or the media had asked me a straight and
obvious question, instead of approaching fellow officers. Was Atul Kumar
Rai related to me?
Now, let me provide a brief background into my association with Atul
Kumar Rai.

When Jaswant Singh took over as finance minister, I was moved as joint
secretary to the banking division of the DEA on 21 November 2002. Atul
Kumar Rai was already working as a director in that department. Two days
later, Ms Vineeta Rai joined as the secretary. So, there were three officers
with the same surname—Ms Rai having acquired hers through marriage, and
Atul and I by birth.
While I was acquainted with Ms Rai, I met Atul for the first time in that
department. In a very short time, I assessed him as being an exceedingly
well-informed professional; he had thorough grasp of his subjects, and shared
his views freely.
Atul was instrumental in helping me restructure the liabilities of
development financial institutions such as IDBI, IFCI and Industrial
Investment Bank of India (IIBI). IFCI was in bad financial health as the
development financial institution model had outlived its utility and was
heading for a default of its liabilities to the banks. With the ‘cooperation’—
though not entirely willing—of the CMDs of banks which had invested in or
lent to it, the liabilities were restructured. This provided IFCI with some
breathing space.
Though the government had no direct holding in IFCI, since it had stood
guarantee for SLR (statutory liquidity ratio) bonds issued by IFCI, and IFCI
had about 1.1 million individual investors, it was incumbent on the
government to ensure that the institution did not default. This was why,
among other things, the government provided financial assistance to IFCI.
523 crore was provided as loan during 2002-2003, and 2,409 crore as a
grant in 2003-2007, out of a total package of 5,220 crore that was approved
for IFCI, IDBI and IIBI.
As per an affidavit filed by a government under-secretary in the case
registered in a writ petition, Atul had given notice on 5 February 2007,
seeking voluntary retirement with effect from 28 February 2007. Since his
cadre controlling authority was the DEA, his voluntary retirement application
was forwarded by the DFS, in which he was serving and of which I was the
secretary, to the DEA, then headed by Dr D. Subbarao. The DEA conveyed
its approval on 26 April 2007 for him to take voluntary retirement with effect
from 30 April 2007. It was then that the voluntary retirement date issue was
put up to me. Since the budget session of Parliament was on, and the ministry
of finance does have enormous workload at that time, when the joint
secretary (administration) in DFS, Amitabh Verma, discussed Atul’s release
with me, I advised him to defer the release by a month. Hence, the note was
recorded by Amitabh—which has been reproduced by the CBI in its
information report. The release was then granted with effect from 31 May
2007, and Atul took over as the CEO of IFCI.
The CBI enquiry is still pending. A report was sent out by the CBI to the DFS
in late 2012. However, certain other clarifications have been sought and the
government continues to pursue the matter.
Even if we were to ignore the innuendos in the PE, we need to reassure
ourselves as citizens of the country that the resources of the CBI, the premier
investigative agency of the country, are being put to best use in investigating
the ‘grave misconduct’ committed by Atul Kumar Rai (in connivance with
other officials of the ministry of finance) by not filling form 25. Information
that emanates from the agency is that it certainly has far more important and
competing demands for its investigative resources. To have these resources
diverted for investigating whether an officer got himself released from the
government without fulfilling the formality of submitting his application in
the prescribed format—an error that could well be a ministerial lapse—is
bewildering. Further, apart from the precious hours spent by the CBI, and the
reams of paper wasted, Parliament and government time at the level of
successive secretaries in the DFS has been consumed. And to what avail?
More so, how did I, the secretary ‘who apparently helped Atul Rai in
getting relieved as soon as possible’ facilitate early release? I, in fact, delayed
it by three months.
The CBI and the government would have us believe that ‘source
information’ led the investigative agency to begin examination all by itself.
However, we all know who instigated the filing of the PE—the source is
authentic as it is from the CBI itself. But that is irrelevant. What is significant
is this—understanding the extent to which some elements in the government
will go to browbeat ‘recalcitrant’ officers so they toe the line. A news item
from The Sunday Guardian, dated 14 August 2011, highlights the
machinations that were taking place:

CONGRESS HUNTS FOR CAG CHIEF SKELETON

The Congress is searching the opposition closet for the skeletons

that Prime Minister Manmohan Singh had talked about recently.
The search extends to the closet of the Comptroller and Auditor
General Vinod Rai. As the Congress gets ready to question Rai’s
integrity, rumours are being floated [...]. Similarly, the enforcement
 directorate is supposed to have asked the British government for
information on Baba Ramdev’s island in Scotland.
The CBI, unfortunately, gets caught in the crossfire. Being an executive
agency functioning in the department of personnel—which is directly under
the prime minister—makes it vulnerable to speculation. In such an
administrative bind, the agency becomes easy game for a law minister to
‘correct its draft affidavits’; it is exposed to allegations of reopening
investigations whenever a political ally or opponent begins to flex its
muscles, and of ‘fixing’ inconvenient officers against whom cases can drag
on for decades without even a charge sheet being filed. These issues made the
Supreme Court comment that the CBI is a ‘caged parrot’28 without the
freedom to investigate or administer.
Successive governments and political parties have blamed the CBI,
calling it a handmaiden of the government in power. While those in the
opposition may criticize the government for misusing the offices of the CBI
for narrow political ends, they never take steps to correct the CBI’s
administrative control structure when they come to power. It is true that a
police dominated investigative agency cannot enjoy the kind of autonomy or
independence offered to the election commission or the CAG; yet, it can
certainly be decoupled from the direct control of the minister for personnel or
the prime minister. Such a move will not only lend a great degree of
credibility to the initiating government, but will also help establish an agency
with professionalism and integrity of its own.

—————————
25Case No. PE 5(A) 2011-AC III, 16 November 2011.
26N. Sundaresha Subramanian and Vrishti Beniwal, ‘The Battle for IFCI’, Business Standard, 20
September 2012.
27Ibid.
28Ross Colvin and Satarupa Bhattacharjya, ‘A “Caged Parrot”—Supreme Court Describes CBI’,
Reuters, 10 May 2013, in <http://in.reuters.com/article/2013/05/10/cbi-supreme-court-parrot-coal-
idINDEE94901W20130510>, accessed on 4 August 2014.
FOLLIES
 5

FIRST COME, (NOT) FIRST SERVED: THE 2G

SAGA

I feel somewhat sad, because I was the one who insisted that spectrum allocation should be
transparent, it should be fair, it should be equitable. I was the one who insisted that coal blocks
should be allocated on the basis of auctions.29
—Prime Minister Manmohan Singh, 3 January 2014

r Prime Minister, people wonder, if you were indeed convinced that

spectrum allocation should be transparent, what prevented you from
executing your wishes? Had you, in fact, stood steadfastly by your beliefs,
the fate of UPA II might have been different. In fact, the fate of the Indian
economy itself might have been very different.
Instead, you engaged in a routine and ‘distanced’ handling of the entire
allocation process, in spite of the fact that the then communications minister,
A. Raja, had indicated to you, in writing, the action he proposed to take.
Insistence on the process being fair could have prevented the course of events
during which canons of financial propriety were overlooked, unleashing what
probably is the biggest scam in the history of Independent India.

To get a perspective on the unfolding of this mega scam, let us briefly go

through the history of telecom in India.
Till 1994, the state was the monopoly agency providing communication
facilities in India. It was in 1994 that the government announced the National
Telecom Policy (NTP 1994) which laid out the roadmap for the future of
telecom in India by defining certain important objectives (including the
availability of telephones on demand, the provision of world-class services at
reasonable prices, etc.) and targets. Crucially, and in recognition of the fact
that the government alone could not deliver the set targets, it concluded that
private investment and the involvement of the private sector was required to
bridge the resource gap. NTP 1994 thus opened the telecom sector to private
sector participation, albeit in a phased manner, from the early 1990s.
This led to exponential sectoral growth. As of 31 March 2010, India had
621.3 million telephone connections, with wireless connections (584.3
million) outstripping fixed lines (37 million). India has, undeniably,
benefitted greatly from the telecom revolution, with the sector growing faster
than it has in any other part of the world.

Radio waves are a form of electromagnetic radiation which, like visible light
or infrared, make up a portion of the entire spectrum. They cannot be
perceived by human eyes or ears, and they are not harmful in the
environment. Depending on their frequency (measured in hertz), radio waves
can pass through solid objects and travel long distances. This makes them
useful for mobile communications, broadcasting and many other wireless
applications.30
2G is a colloquial reference to second-generation wireless telephone
technology. In view of the substantial upgrade it offered over the first
generation, which was confined basically to voice telephony, 2G licenses
were much in demand. There were three basic benefits of 2G networks:

Based on narrowband digital networks, signals were digitally encrypted

thus dramatically improving the quality of calls while also reducing the
complexity of data transmission.
These systems were significantly more efficient on the spectrum,
allowing for greater mobile phone penetration levels.
They allowed data services for mobiles, such as text messaging.
The radio frequency spectrum for this technology to transmit voice, mail,
data or broadcasting through handheld devices is finite but not consumable.
In India, the department of telecommunications (DoT), which falls within the
purview of the ministry of communications and information technology, is
the custodian of the spectrum, and responsible for its allocation. It also has
the authority to issue licenses to operators in the telecom sector.

The licensing of cellular services was done in phases. Under NTP 1994, the
first phase saw only two cellular mobile telephone services being allotted in
the four metros, based on a ‘beauty parade’31 procedure. In the second phase
in December 1995, two more services were awarded in eighteen telecom
services through a process of competitive bidding. In 1999, a revised policy,
NTP 1999, was announced, and existing operators were allowed to migrate to
a revenue sharing regime. The upfront payment was an entry fee, with the
annual license fee to be paid separately. The entry fee was fixed on the basis
of the highest bid received in the 2001 auction of licenses. It was 1,651
crore for pan-India licenses, corresponding to circle-specific fees. The entry
fee had spectrum embedded in it. What needs to be noted in all these policy
changes is that the award of all licenses was done through a market discovery
or bidding process.
In September 2003, Prime Minister Atal Bihari Vajpayee constituted a
group of ministers (GoM) on telecom issues. The resultant report of the GoM
was approved by the union cabinet in October 2003, and these
recommendations became an addendum to NTP 1999. According to this
policy formulation, the existing system of licensing was to be replaced by a
unified licensing/automatic authorization regime. In addition, the cabinet also
decided to constitute a GoM to recommend an efficient pricing formula for
spectrum and for the vacation of spectrum by the ministry of defence. This
was enunciated through the terms of reference of the GoM, issued by the
cabinet secretary in February 2006 [Appendix 5].
However, the then telecommunications minister, Dayanidhi Maran,
objected to spectrum pricing being included in the terms of reference of the
GoM [Appendix 6]. He wrote to the prime minister (by then Dr Manmohan
Singh had taken over) stating that it was his ministry’s prerogative to decide
on spectrum pricing, and asked for the pricing clause to be removed from the
terms of reference of the GoM. No meeting of the GoM was held till the
PMO acquiesced. Revised terms of reference for the GoM were issued in
December 2006, excluding the spectrum pricing clause [Appendix 7].
Surprisingly, no one pointed out that this revision of the terms of reference
was contrary to the cabinet decision of October 2003, which had given an
equal role to the ministry of finance in spectrum pricing. Maran’s insistence
on retaining spectrum pricing within his own ministry came under
tremendous adverse scrutiny in 2007.
It may be recalled that in the entire run-up to the issuance of licenses,
DoT stood by its viewpoint of not permitting any change in spectrum pricing,
which had been arrived at in 2001 for allocation of 2G spectrum in 2008, and
blocked attempts by the prime minister and the ministry of finance to engage
in a review of the pricing formula.

A. Raja succeeded Dayanidhi Maran as telecommunications minister in May

2007, both ministers being from the Dravida Munnetra Kazhagam (DMK)
party. It was then that the process for spectrum allocation gathered
momentum. Raja decided to continue with the internally adopted principle of
first-come-first-served (FCFS) for the allocation of spectrum: every
application received at the central registry section of the DoT would be
assigned its priority based on its date of receipt. Raja was categorical, as
evident in his correspondence with the PMO:

he would follow the FCFS process;

there would be no cap on the number of licenses in a service area;
low tariff improved the reach and spread of services;
suggestions of referring the allocation issue to the GoM were ‘totally out
of context’.

So he was seemingly candid in wanting to decide the issue himself.

To understand the process as it unfolded, let us delve into the
correspondence leading to the issuance of the letters of intent (LoI) on 10
January 2008.
2 November 2007 stands out as a red-letter day in the saga of what later
came to be referred to as the 2G scam. This day saw the start of a flurry of
correspondence32 [Appendix 8] that would change the course of India’s
political history. It started with A. Raja, then the communications and
information technology minister, writing to the prime minister to inform him
that the telecom regulatory authority of India (TRAI) had earlier
recommended ‘no cap’ on the number of licenses that could be issued in a
particular service area, as a result of which a press release was issued on 25
September 2007 and applications were invited for telecom licenses. The last
date for submitting applications was 1 October 2007. Since there were an
unprecedented number of applications—575 applications had been received
for 22 service areas—the ministry of communications sought the advice of
the ministry of law on how to deal with them. The ministry of law’s advice
was to refer the issue, for an appropriate decision, to the eGoM. On this
advice, Raja, in his letter to the prime minister, emphatically wrote, ‘[the]
ministry of law, instead of examining the legal tenability of alternative
procedures, suggested referring the matter to an empowered group of
ministers […] the suggestion of law ministry is totally out of context.’33 Raja
went on to inform the prime minister that the DoT had decided to continue
with the existing policy of ‘FCFS’ for processing the applications, and
advanced the cut-off date to that day itself (that is, the date when the press
release inviting applications appeared in the newspapers: 25 September
2007). He assured the prime minister that ‘the department is not deviating
from the existing procedures’.34
The prime minister responded the same day [Appendix 8]. Among other
issues, the prime minister expressed concern about ‘processing of a large
number of applications received for fresh licenses against the backdrop of
inadequate spectrum to cater to overall demand’. In a note that was enclosed
with this letter, the prime minister elaborated on the issue:
DoT has received a large number of applications for new licenses
in various telecom circles. Since spectrum is very limited, even in
the next several years all the licensees may never be able to get
spectrum. The telecom policy that had been approved by the Union
Cabinet in 1999 specifically stated that new licenses would be
given subject to availability of spectrum.35
The prime minister advised Raja to consider a transparent methodology of
auctions wherever legally and technically feasible and to consider a revision
of the entry fee, which ‘is currently benchmarked on old spectrum auction
figures’.
 Raja sent a prompt response, within hours on the same day [Appendix
8]. He wrote, ‘The issue of auction of spectrum was considered by TRAI and
the telecom commission and was not recommended as the existing license
holders […] have got it without any spectrum charge’. He went on to say that
holding an auction would be ‘unfair, discriminatory, arbitrary and
capricious’.36 He, as it later turned out, erroneously assured the prime
minister that there was enough, and more, spectrum available for everyone
for 2G services.
Information on the DoT’s plan of action was obviously leaking out and
causing widespread concern in official circles—a foreboding that something
radically wrong was likely to happen. Some such information seems to have
reached Kamal Nath, the then commerce and industry minister. On 3
November 2007, he wrote to the prime minister stating, ‘I am writing this
letter with concern on the sudden and alarming developments in the telecom
sector.’37 He went on to add that fair play was vital for the image of India
across the globe, and that a GoM be asked to comprehensively study all the
issues facing the telecom sector.
Raja wrote to the prime minister again on 15 November 2007 [Appendix
8]. Referring to the concerns expressed by Kamal Nath, which had been
brought to his notice by the prime minister, he assured the prime minister
that:
[…] in the last six months, Indian industry, including the telecom
sector, has shown good growth [.…] 7 million subscribers are being
added per month and quarterly results of these companies have
shown one of the best results ever which is also reflected in the
increasing share prices of these companies on the Indian Stock
Exchanges. […] Since the department has decided to continue with
the existing policy [FCFS] for processing of applications, the
suggestion of Shri Kamal Nath for setting up of GOM is out of
context.
In an obviously sarcastic reference to what had been mentioned by Kamal
Nath in his letter to the prime minister, Raja adds, ‘I would also like to clarify
that I am equally concerned about the image of India across the globe and
assure you that all decisions taken by me will be guided by the larger interest
of the public, competition and [the] growth of telecom sector’.
The prime minister responded to this letter on 21 November 2007
[Appendix 8]. This letter has to be noted for its wording, and hence is
reproduced.
21 November 2007
Dear Shri Raja,
I have received your letter of 15 November, 2007 regarding the
recent developments in the telecom sector.
With warm regards.
Yours sincerely,
Manmohan Singh
The scene then shifts to 26 December 2007, when Raja again wrote to the
prime minister [Appendix 8]. Referring to his letter of 2 November and
subsequent discussions which he had had with the prime minister and the
then external affairs minister, Pranab Mukherjee, Raja categorically stated:
As I have already promised to you, my efforts in this sector are
intended to give lower tariff to the consumers and to bring higher
teledensity in the country, more specifically in the rural areas. It is
needless to say that tariff in India is not as cheap as claimed in
terms of purchasing power parity and standard of living of the
country since there is no tariff fixation. In these circumstances, the
discussions with the external affairs minister and solicitor general
of India have further enlightened me to take a pre-emptive and pro-
active decision on these issues as per the guidelines and rules
framed there under to avoid any further confusions and delay.38
At the end of the enclosure attached to the letter, he stated:
Since the file for issue of LoI to all eligible applicants was
approved by me on 2-11-2007, it is proposed to implement the
decision without further delay and without any departure from
existing guidelines.
Unbelievably, the prime minister chose to ignore the red flags of deviation
from policy, and questionable facts and figures offered by the minister. His
response, on 3 January 2008, was remarkable for its content. I reproduce it
merely to bring home the point of the distanced dealing of the issue
[Appendix 8]. He wrote:
3 January 2008
Dear Shri Raja,
I have received your letter of 26 December, 2007 regarding recent
developments in the telecom sector.
With warm regards.
Yours sincerely,
Manmohan Singh
A template response (see the prime minister’s letter of 21 November 2007,
reproduced earlier) if there ever was one, and that too, to an issue which
shook the government and the country. Those were identically worded letters;
only the dates are different.

It is obvious from the exchange of these letters that the prime minister was
indeed aware of Raja’s intentions as far back as November/December 2007.
He chose, for reasons which can only be speculated, to ignore the warning
signals. He failed to direct his minister to follow his advice, the counsel of
the ministries of law and finance, and the commerce minister Kamal Nath’s
suggestion that the issue be brought to a GoM for threadbare discussion.
Why, and under what compulsion, did the prime minister allow Raja to
have his way, which permitted a finite national resource to be gifted at a
throwaway price to private companies—private companies that, going by the
minister’s own admission, were ‘enjoying the best results […] which was
also reflected in their increasing share prices’? If only Prime Minister
Manmohan Singh had responded differently; if only he had instead said—‘I
have received your letter of 26 December 2007. Please do not take any
precipitate action till we or the GoM have discussed this.’ Such a letter would
have changed the course of UPA II. It is for this reason that I have, at the
outset, asserted that had the prime minister insisted on transparency, as he
claimed on 3 January 2014, the course of political history of this county
would have been different. But more on this later.
There were strong interjections from the ministry of finance that clearly
felt that applying a price determined in 2001, without indexation, was
inappropriate. However, this was brushed aside. Giving finite spectrum to a
private party for commercial exploitation, even if it enhances teledensity,
requires a balance between revenue generation and achieving social
objectives. It needs to be emphasized that even the tenth five-year plan
document on spectrum policy mentions that ‘pricing needs to be based on
relative demand and supply over space and time in a dynamic manner, [with]
opportunity cost to reflect the relative scarcity of the resource in a given
situation.’39 Thus, the action of the DoT to take a price discovered in 2001,
when the sector was still nascent, and apply it after a passage of seven years
in spite of changes in market conditions, and in the face of contrary advice
from the PMO and the ministries of finance and law, certainly does not pass
any test of transparency.
The DoT constantly emphasized that its decision was taken to serve the
twin objectives of providing cheap telephony and deeper teledensity. In fact,
Raja, in his letter to the prime minister on 15 November 2007 writes: ‘I agree
that telecom tariff in the country are [sic] one of the lowest in the world.
However, these may be seen in conjunction with the lower input costs and
per capita income in the country.’ Doing a volte face in his next letter of 26
December 2007 to the prime minister, he writes: ‘It is needless to say that the
tariff in India is not as cheap as claimed in terms of purchasing power parity
and standard of living in the country since there is no tariff fixation.’ What do
we believe? Telecom tariff the ‘lowest in the world’ or ‘tariff in India is not
as cheap’? Contradictory statements in successive months.
Let us approach the argument of teledensity. NTP 1999 had fixed a
teledensity target of providing 15 telephone connections per 100 [in
population], to be achieved by 2010. In September 2007, a teledensity of
18.22 had already been reached. The eleventh five-year plan had targetted
500 million connections by 2010; this target, too, was achieved early—in
September 2009. It is obviously no one’s case that we need to sit back once a
target is achieved, but surely revenue mobilization, in lieu of a scarce national
resource being made available for private commercial exploitation where
tariff is not fixed, cannot be totally overlooked.
Was this data not available with the government—the PMO, the
ministry of finance and even the officialdom of the DoT—to counter Raja’s
consistent and constant refrain?
Now let us examine Raja’s assertion that there had been ‘no single
deviation or departure in the rules and procedures contemplated in all
decisions taken by my ministry and as such full transparency is being
maintained…’40 The DoT had decided to continue with the so-called existing
policy of FCFS for processing applications. The minister also confirmed that
an unprecedented number of applications had been received by the cut-off
date of 1 October 2007. This is the date which was announced by a press
release issued on 24 September 2007 after being personally approved, indeed
amended, by the minister himself. However, despite making a public
announcement along these lines, Raja arbitrarily advanced the cut-off date to
25 September 2007. Why? No credible explanation was offered. Though Raja
clearly indicated this to the prime minister in his letter of 2 November 2007,
the PMO chose not to object. Why it chose not to, remains unclear.
Let us go a step further. FCFS, as the term suggests, is meant to have
chronological seniority. One would be surprised to learn that even this
procedure, which was repeatedly reiterated to the prime minister by Raja, was
given the go-by, and all applications submitted between March 2006 and 25
September 2007 were considered together. The applications submitted
between March 2006 and 25 September 2007 were issued the LoIs
simultaneously on a single day, that is, 10 January 2008, when a notice was
issued through a press release giving less than an hour to collect the LoIs.
Thus, not only was the goal post shifted from 1 October 2007 to 25
September 2007, but the principle for issuance of LoIs became the
compliance date, and even this date seems to have been known to a select
thirteen applicants in advance of the issuance of the press release. The oft-
repeated claims of transparency and objectivity were further put paid to when
certain applicants appeared with demand drafts of thousands of crores of
rupees having been issued even before the date of the press release.41
It was becoming clear that the minister was shooting off letters to the
prime minister and others from his personal office, rather than on behalf of
the department. In fact, the DoT was in the dark. My doubt was confirmed
when I looked closely at the letters: while correspondence emerging from the
department stated FCFS to be ‘first-come-first-served’, that emerging under
the signature of the minister (including the press release of 7 January 2008,
featured in Appendix 9 with the minister’s personal corrections) mentioned
FCFS as ‘first-cum-first served’ [emphasis mine]. This clearly established the
fact that the department and the minister did not appear to be in sync. Let
alone transparency before the world, there was no transparency between the
minister’s office and the department. Or else the correction would have been
made.
What is even more illuminating than the correspondence between Raja
and the prime minister and the press release of 7 January 2008, is the
examination and notings on the files within the PMO on the letters written by
Raja, which were not made available to audit, but came into the public
domain after the files were given by the PMO to the JPC. These show
detailed internal examination, but not leading to any output from the PMO to
the DoT.
Letters written by A. Raja were examined in the PMO and it was
concluded by the joint secretary, Vini Mahajan, that there was a perceptible
difference of opinion between the ministry of communications and the
ministry of law. According to the ‘Transaction of Business Rules of the
Government of India’, ‘cases in which a difference of opinion arises between
two or more ministries and a cabinet decision is desired, shall be brought
before the cabinet’.42 Officials in the PMO advised that this norm be
communicated to the ministry of communications, but the prime minister
desired that a deeper examination be made of the action proposed by the
DoT. This was on 7 November 2007. Was time being gained?
Pulok Chatterji, then the additional secretary at the PMO, went into the
issue in greater depth. In a note to the prime minister on 6 January 2008, he
concluded that:

Spectrum available to mobile operators in India is much less than in

other countries.
Traffic density in the larger urban areas of India is much more than in
cities abroad, in terms of a unit of measurement called erlang/km2, and
that it was over 75 in Mumbai as compared to 10 in Sweden and 15 in
Berlin. [This measurement indicated that on an average a mobile user in
India used his phone 6-7 times more than someone in Europe.]

He concluded, as had the ministry of finance, that ‘ideally in a situation

where spectrum is scarce, it should be auctioned’.43 By the time this note
reached the prime minister, the DoT had issued licenses. A noting on 11
January by Vini Mahajan quotes the prime minister as stating that the DoT
had issued licenses on that day and the prime minister wanted the note to be
accordingly modified.
 Modified for what now? Clearly the stable doors had been opened and
the horses had bolted. What was the prime minister seeking to do with a
modified note? When Raja had clearly indicated his intention in his 26
December letter and the PMO felt his action required a consultation in the
cabinet, why was there so much hesitation? Even after the so-called modified
note was put up to the prime minister by Pulok Chatterji on 15 January, Vini
Mahajan recorded that the prime minister still wanted this to be ‘informally
shared with the Dept’. Informally, still? Why? Vini Mahajan went on to
record that ‘[the prime minister] does not want a formal communication and
wants PMO to be at arm’s length’.44 How can the office of the prime minister
distance itself from such major decisions? Arm’s length from the action of
his own government?

As we now know, the Indian audit and accounts department conducts only
external audit, which by definition is a post facto audit. The department is
also very clear in its understanding that it is merely an auditing agency and
does not enter the area of policy formulation which is the sole prerogative of
the executive or government. This fact has been specifically stated on the
very first page of the CAG’s report on spectrum allocation:
[…] while accepting the government’s prerogative to formulate
policy of UASL, it was felt [by audit] that an in-depth examination
of implementation of such policy needed to be done.
At no point was the CAG’s establishment seeking to influence, determine,
advise or constitute policy formulation. The CAG merely conducted an audit
to ascertain whether the laid down procedure/policy of the government had
indeed been followed—which, in this case, was the government’s decision to
follow the FCFS principle. In fact, the decision to give up the FCFS principle
(followed in 2008) in favour of an auction process for 3G licensing (adopted
in 2010) was taken by the government itself, much before the CAG’s report
appeared. The auction for 3G was completed on 31 May 2010. The CAG’s
report on 2G was tabled in Parliament on 16 November 2010. So where was
the question of the CAG masquerading as a player in the policy domain?
Furthermore, Raja resigned as telecom minister even before the presentation
of the report.
The CAG’s performance audit process invited a lot of attention and criticism,
to put it mildly, and not least for the so-called humongous figure that my
team and I ‘conjured up out of nowhere’, establishing the loss to the national
exchequer. There was and has been a lot of debate on why the CAG
computed the potential or presumptive loss to the national exchequer. One
needn’t go further than the March 2002 auditing standards released under the
signature of the then CAG V.K. Shunglu:
With regard to fraudulent practice or serious financial irregularities
detected during audit or examined by audit, a written report should
be prepared. This report should indicate the scope of audit, main
findings, total amount involved, modus operandi of the fraud or the
irregularity, accountability for the same and recommendations for
improvement of internal control system, fraud prevention and
detection measures to safeguard against recurrence of fraud/serious
financial irregularity.45
It is clear that audit is duty bound to report on any perceived loss of revenue.
It wasn’t only the fact of calculating the loss, but also the methodology
of computing it that attracted widespread attention. The formula applied for
computing the loss was used after requisite deliberation, and based on a
logical understanding of tax laws in India and abroad. The other option
before the audit team was to use mathematical or econometric modelling.
Such models are premised on certain assumptions, which may or may not
hold true in real life market situations and would thus be vulnerable to
criticism. Hence, the modelling methodology was given the go. Audit was
also aware that too much was at stake for far too many important and
influential people, and it could not take the risk of having its computation
being vulnerable to the intense examination it was bound to be subjected to.
It was thus decided to use data and other indicators which were already in the
public domain. The parameters that were thus used were:

the rate offered by S Tel, as against what the government had fixed [S
Tel was one of the applicants for spectrum license];
the sale of equity of new licensees, as recorded in the stock exchange;
and
the rates which emerged after the 3G auction.
Parameter 1: Let us accept the contention of the DoT that the FCFS
procedure was then the established practice, and that it was only natural for
the department to take that route. All the concerned departments, including
the PMO, had objected to the entry fee of 2001 being made applicable for
new operators in 2008. The DoT decided, against such advice, to charge the
entry fee discovered in 2001, even for new licensees under the Unified
Access Services (UAS) regime. The entry fee for a pan-India UAS license
discovered in 2001 was 1,651 crore. In view of the rapid changes which had
catapulted teledensity from 3.58 in 2001 to 26.22 in 2008, the incongruity of
applying that price was staring everyone in the face.
When the DoT was in the process of releasing spectrum at that price, S
Tel, one of the bidding companies, wrote to the prime minister (in November
2007) volunteering to pay an additional revenue share of 6,000 crore. In a
subsequent communication (dated 27 December 2007), the company
enhanced this offer to 13,752 crore over a period of ten years for an
allotment of 6.2 MHz. It also offered to increase its bid in the event of a
counter bid. These developments occurred much before the LoIs were issued,
providing ample time for the government to rethink and re-evaluate its course
of action.
There could have been no clearer indication of what the market could
bear for allotment of spectrum. Had this price been accepted by the DoT, they
would have realized 65,909 crore as against 12,386 crore realized for 122
new licenses and 35 licenses under dual technology. In fact, upon finding that
their offer had not being accepted, S Tel went to the Delhi High Court and
got the court to direct the government to reconsider its offer. When even the
reconsideration did not yield positive results, the company approached the
Supreme Court. This is indicative of their seriousness to pursue their bid.
They finally withdrew their bid in March 2010, when their competitors had
already got their UAS licenses along with spectrum and had established their
infrastructure.
Very many arguments based on technicalities have been offered against
this parameter being used by the CAG. However, the entire narration of the
sincere attempt by S Tel, and the substantially higher price it was offering in
comparison to that fixed by the DoT, is clearly indicative of the revenue
foregone by not applying a realistically benchmarked price, based on a
reading of what the market could bear.
Parameter 2: The total foreign direct investment (FDI) permissible to an
applicant company was 74 per cent. The level of foreign investment that
several new entrants, along with existing licensees, were able to attract after
getting the spectrum license was exceedingly illuminating. In the case of
Unitech, which had no previous experience in the telecom business, Telenor,
a Norwegian company, agreed to acquire a 67.25 per cent stake for 6,120
crore. Tata Teleservices sold a 27.31 per cent stake to NTT Docomo at a
value of 12,924 crore. Even Swan Telecom sold 44.73 per cent stake to
Etisalat International at 3,217 crore.
Is that not clearly indicative of the value the market attached to the 2G
spectrum license? Even a cursory back-of-the-envelope calculation will
indicate that licenses which could have fetched between 8,000 to 9,000
crore were priced at 1,658 crore by DoT. Hence, one reaches the the
inescapable conclusion that the revenue which could have accrued to the
national exchequer was gifted to the new licensees in the form of huge capital
infusion for enriching businesses. Can the CAG then be faulted for its
commonsense conclusion? Here again, various arguments have been trotted
out that this was for additional equity being infused and was not a direct
profit to the licensees. Again, did this not indicate that the scrip of that
company could command that price only after being awarded the spectrum
license?
Parameter 3: The avowed government policy of FCFS gave way to the
process of auction for 3G allocation. This was completed on 31 May 2010,
and fetched the government handsome revenue. The rationale or logic of this
comparison as a parameter for computing loss lies in the CAG taking note of
TRAI’s report of 2010, wherein it stated that 2G licensees were, in fact,
offering more than 2G capability: ‘While comparing spectral efficiency and
other factors, it is fair to compare the existing 2.75G systems with 3G
systems’.46 Hence, we compared the revenue accrual of 2G with that of 3G.
And this brought us to the presumptive loss figure of 1.76 lakh crore. These
are merely indicative figures. They convey an order of magnitude. No doubt,
the media and public imagination were captured by this figure, and the
government got fixated on it.
In computing presumptive losses, we have clearly stated that while the
fact of loss to the national exchequer can hardly be denied, the quantum of
loss can be debated. We sincerely believe that the government itself validated
our computations by debating the loss—from the now famous ‘zero loss
hypothesis’ to the 32,000 crore mentioned by the CBI.
While auditing the telecom department, two exit conferences had already
been held, as against the standard practice of having only one conference.
The then secretary of the telecom department, P.J. Thomas who, of course,
was only a recent entrant to the department, came to see me. He expressed the
concerns of his minister, and also mentioned that the minister had gone to
meet the principal secretary to the prime minister on the issue. Just as an
aside, I asked him why the minister chose to meet the principal secretary, and
not the prime minister. Thomas’ response conveyed so much: ‘My minister
believes it is not enough to appease the deity, you have to appease the pujari
[priest] also.’ A remarkable hypothesis, isn’t it?
Anyway, the sum total of that meeting in the PMO was a request for yet
another exit conference, as apparently the telecom department had additional
facts that it wished to apprise the audit team about. We granted the third exit
conference. The department’s officials came. When asked about the new facts
they wanted to apprise us about, their reply was that they had been asked to
meet us, which is why they had come. They had nothing new to offer.
All audits, including performance audits, are conducted by audit teams
drawn from field offices. Field offices in the case of state governments are
those of the accountants general (audit) in state capitals. In the central
government establishment, the principal directors of audit are located in
significant places. In the case of post and telecom audits, there is an
independent office headed by a director general ranked officer in Delhi. This
office constitutes the audit team and conducts audits of either government
departments or public sector enterprises under the post and
telecommunications ministry through the branch office which is also located
in Delhi. The practice is as follows—audit memos are issued after perusing
files; once a response to these memos is received, a draft report is prepared
by the branch office and sent to the director general’s office. He then verifies
the draft and after making his own assessments, additions and deletions,
sends the draft report to the CAG headquarters. Here, it is examined by a
team headed by a director general and then the deputy CAG. Only after this
does it reach the CAG’s desk.
This procedure was followed to a T for the 2G spectrum audit. The audit
of the DoT was conducted by a three-member team of the Delhi branch office
of the director general of audit, post and telecommunications [DG (P&T)].
After completing the audit, they submitted a draft report to the DG on 20
April 2010. Among other issues, this report carried a loss figure of 48,374
crore. The DG (P&T) did his own independent study of the draft and, on 31
May 2010, submitted his report to the headquarters. In his report, the DG
(P&T) revised the figure of loss of revenue as estimated by his branch office
to 2,645 crore. He mentioned various figures in his draft report and covering
letter. Some of these were reasoned out but others were not adequately
supported by arguments and documents. The conclusions arrived at by the
DG were based only on the audit of the DoT. The DG had drawn attention to
a computation made by him on the voluntary offer of S Tel, as per which the
loss of revenue to the government would have been 65,725 crore. He had
however not included this in his report as he felt the offer had been
withdrawn in the High Court. On verification by the headquarters, it was
learnt that the offer had actually been withdrawn by S Tel two years later,
much after the LoIs had been issued, in March 2010, and that too in the
Supreme Court. Hence, in final computations made, this figure was retained
as it was a clear and unequivocal representation of the price that spectrum
could command.
Using the third parameter, the DG also compared 3G rates with 2G rates
and arrived at a figure of 1.02 lakh crore. He had, however, not included this
in his report on the understanding that TRAI had not recommended charges
for spectrum roll out, other than entry fee. However, while not
recommending an auction, TRAI (in August 2007) had clearly stated: ‘In
today’s dynamism and unprecedented growth of telecom sector, the entry fee
determined in 2001 is also not the realistic price for obtaining a license.
Perhaps it needs to be reassessed by a market mechanism’.47
The DG’s audit obviously was incomplete because he was not privy to
advice by departments such as finance, law and the PMO, having only seen
the files of the DoT. He had thus recommended that the headquarters may
ascertain the views of the CVC, CBI, ministries of finance, law and company
affairs, and TRAI to arrive at a comprehensive picture.
The earlier report of the DG (P&T) was thus updated using these
parameters and additional inputs which had not been available to the DG
when he submitted his first draft on 31 May 2007. The DG, R.P. Singh,
himself forwarded this report to the secretary (telecommunications) on 19
July 2007. This draft report, issued under R.P. Singh’s signature, states:
If the price of S Tel is used as [an] indicator of market valuation of
 6.2 MHz of 2G spectrum at that time, value in respect of all 122
licenses works out to 65,725 crore as against 9,013 crore
collected by DoT. Added to this is the value of new licenses for
dual technology of 24,591 crore, totalling 90,316 crore.
He went on to state:
If price is calculated at 3G rates, which can also be taken as one of
the indicators for assessing the value of 2G spectrum […] the value
works out to 1,11,511 crore against the 9,013 crore realized by
the DoT. [Added to it is the value of dual technology and spectrum
beyond contracted quantity of 6.2 MHz to arrive at 1,76,379 crore
in the draft report itself.] Any loss ascertained while attempting to
value the spectrum can only be ‘presumptive’ given the fact that
there are varied determinants like its scarcity value, the nature of
competition, business plans envisaged, etc which, in a market
condition, would throw up the actual price at a given time […] Its
presumptive value, based on various available indicators, as
indicated in chapter 5 ranged between 90,000 crore and 1,40,000
crore. In addition, the value of additional spectrum allotted beyond
the contractual amount to existing nine operators, based on the 3G
rates worked out to 36,729 crore.48
I must add that at this stage R.P. Singh certainly did not express reservations
in the content of the report that he was transmitting to the DoT.
The perusal of the files of the ministry of finance had provided us with
very surprising inputs. That ministry was consistently questioning the
sanctity of continuing with a price determined way back in 2001 without any
indexation or current valuation. This viewpoint of the ministry of finance had
found resonance among the officials of the DoT. The member (finance) and
the secretary had concurred with the view. But Raja disagreed and very
vehemently too. This is what he recorded:
[…] officers have neither up to date knowledge of UAS guidelines
nor have bothered to go through [the] file [.…] These types of
continuous confusions observed on the file whoever be the officer
concerned does not show any legitimacy and integrity but only
their vested interest [.…] the matter of entry fee has been
deliberated in the department, several times in the light of the
 various guidelines issued by the department and recommendations
of TRAI and accordingly [a] decision was taken that entry fee need
not be revised.49
Vested interests, Mr Raja?
The DoT responded to R.P. Singh’s draft. These responses were
considered and incorporated by R.P. Singh. He then sent his report on 28
September 2010, which contained the potential losses as they have appeared
in the final report. After that, the report was referred for peer review before a
committee of five DG level officers. There were detailed deliberations and
the final version was then put up before the deputy CAG and the ‘bond copy’,
as it is called, before the CAG.
After the bond copy is signed by the CAG, no one can make corrections
in the report without his approval. It is then printed and sent to government
with the DG signing and the CAG countersigning. As mentioned earlier, this
procedure was followed to the T in this case too.
It is not often that CAG reports having such significant discoveries find
their way into Parliament. Before putting out such startling conclusions one
did deliberate for days. Issues such as whether the department was on firm
ground in its findings, facts and figures repeatedly dogged us. What would be
the reactions and the consequences? Obviously there would be a backlash.
Would we be able to sustain ourselves and our point of view? I must state
most categorically that the professional content in the department is superb.
The officers are apolitical; their factual findings have been uncontested. We
decided to take the plunge, as not doing so would have left all of us with a
lifetime of remorse and guilt. What we had not factored in was the personal
backlash that it brought forth. But then, it is a fact of life—if someone is hit,
he will hit back only at his own level. We are not in the least repentant of our
actions.
The final report was presented to Parliament on 16 November 2010.
That day, coincidentally, marked 150 years of the CAG’s existence. We had
scheduled a major event at Vigyan Bhawan. The president of India and the
prime minister were to participate. A reception was scheduled in the evening
at the CAG’s official residence. For the evening reception, the prime minister
regretted the invite, as did the president. This was the only reception at the
CAG’s residence in any departmental officer’s memory, and that too, for a
rare event. The president and the prime minister attend annual receptions at
the residences of the directors of the intelligence bureau and the CBI every
year. Surely, the Indian audit and accounts department could also do with
some encouragement?
The prime minister arrived for the function at Vigyan Bhawan. He
expressed to me his disagreements regarding our conclusions in the report. I
mumbled my usual defence. He was visibly upset. Silence from my side was
called for.

The fact that the Supreme Court cancelled all 122 licenses is now history.
The auction, as per the directions of the Supreme Court, was conducted in
November 2012. Only 17,343 crore was received as the bid amount from
sale of spectrum in eighteen circles and a one-time fee. Newspapers reported
that the government was indeed gleeful that the auction had flopped.
Debunking allegations that the government was celebrating the failure of the
auction to substantiate its zero loss theory, Sibal said, ‘We are sad with the
situation. But the government is confident of garnering 40,000 crore from
spectrum sales as auction will continue for the unsold circles till March
[2013] end’.50 However, the photographs that appeared in the papers when
the three ministers held a press conference said it all. One quote read: ‘Poor
response to 2G auction shows policy making should be left to the
government’ (Kapil Sibal, information technology and communications
minister). Another said: ‘The 2G scam of 1.76 lakh crore is a myth’ (P.
Chidambaram, finance minister).51
Soon the government completed about thirty rounds of e-auction for the
allocation of 2G licenses for 900 and 1800 MHz in the four circles that had
received no bids in the earlier auction. The amount the government netted
was 61,162 crore—close to the figure of 67,000 crore indicated by the
CAG, and one-and-a-half times beyond the government’s anticipation (as
mentioned by Sibal). Yet, there was no excitement that the government had
got a huge amount which would help plug its burgeoning fiscal deficit. There
was no press conference by ministers to announce this huge amount the
auction had mobilized. It was left to a lowly bureaucrat, telecommunications
secretary M.F. Farooqui, to state:
[…] the government will get at least an estimated amount of
18,200 crore this fiscal (out of the total bid amount of 61,162
 crore), much higher than the budget estimate of 11,300 crore.52
There was no celebration or glee being displayed this time around, despite the
huge support to the ways and means position.
After the auction, all newspaper headlines carried similar reports.
‘Auction Shows Transparency Pays,’ The Times of India said on 15 February
2014. The Pioneer went on to report:
Former CAG Vinod Rai and his team had the last laugh on
Thursday when the ten-day-long 2G spectrum auction ended by
fetching 61,162-crore to the public exchequer. This whopping
figure of the 2G auction is much above the three-year-old 3G
auction rates.53
It may be recalled that the CAG report was presented to Parliament on 16
November 2010. The telecom minister changed and Kapil Sibal took over.
On 7 January 2011, he held a press conference propounding the now famous
hypothesis of ‘zero loss’. In this press conference, while he agreed with the
CAG that the rules and procedures had been ignored and goal posts shifted,
he disagreed on the loss figure.
Commenting on this press conference of 7 January 2011, in an editorial
titled ‘Zero Credibility’,54 T.N. Ninan concluded:
If we focus on the reality that the whole country can see, and not
the technicalities of government policy-making that Mr Sibal
focused on, the issue that remains to be debated is the quantum of
loss to the government. Mr Sibal questions the CAG’s figure of
1.76 lakh crore on the perfectly valid argument that you cannot take
a 2010 price and apply it to a 2008 situation. But that is what the
government itself did, when it took a 2001 price and applied it in
2008, though the telecom scene had been transformed in between.
As it happens, the CAG has more than one figure of revenue loss.
Several commentators have also come up with numbers, which run
into tens of thousands of crores. And because of the aberrant
manner in which Mr Raja handed out these substantial gifts, it
became the largest scam in our history. So when Mr Sibal claims
zero loss, I’m afraid he carries zero credibility.
How true, Mr Ninan!
 I have dwelt, indeed laboured on this particular case study, as it was the
first in the unfolding of a series of misguided actions of a government that
seemed to have forgotten its oath to preserve and protect the interests of the
nation. It was not as if the primus inter pares or other members of the cabinet
were not aware of what was happening; indeed, the whole nation was seized
of it. Why then was the saga allowed to unfold? From day one, the attempt
was to live in denial, to shoot the messenger, and if this wasn’t possible, to
puncture the credibility of an organization that had withstood all possible
scrutiny for 150 years. The now (in)famous conference, propounding the
equally (in)famous ‘zero loss’ hypothesis was a precise attempt at doing just
this—proclaiming that there was no malfeasance, and that the CAG had
erred. Save a few committed journalists and fellow travellers—who could be
counted on the fingers of one hand—none bought the myth.
This is a story that reflects a lack of probity. This is a story of the total
bankruptcy of any pretense of morality. This is a story of the misguided
belief that the underlying objective of all action is to remain in power, and
keep a coalition secure—the nation and its people be damned.
Hence, this is a story worth narrating.

—————————
29See ‘History Will Be Kinder to Me than the Media, Says Manmohan’, The Hindu, 3 January 2014.
30Groupe Speciale Mobile Association, in <http://www.gsma.com/spectrum/what-is-spectrum/>,
accessed on 5 July 2014.
31A beauty parade would fix the price of spectrum to ensure optimal utilization by awarding it to the
user(s) scoring the highest points against pre-set criteria.
32All letters are in the public domain, having been released by the PMO itself.
33See ‘Manmohan Singh-Raja Correspondence on 2G Spectrum’, The Hindu, in
<http://www.thehindu.com/multimedia/archive/00415/Manmohan-Raja_corre_415319a.pdf>, accessed
on 28 July 2014.
34Ibid.
35Ibid.
36Ibid.
37See, ‘Parallel Report in the Form of Dissent Note on the Report of the JPC: Gurudas Dasgupta,’ The
Communist Party of India, 8 October 2013, in <http://www.communistparty.in/2013/10/parallel-report-
in-form-of-dissent-note.html>, accessed on 5 August 2014.
38See ‘Manmohan Singh-Raja Correspondence on 2G Spectrum’, The Hindu, in
<http://www.thehindu.com/multimedia/archive/00415/Manmohan-Raja_corre_415319a.pdf>, accessed
on 28 July 2014.
39See Tenth Five-Year Plan, 2002-2007, in
<http://planningcommission.nic.in/plans/planrel/fiveyr/10th/volume2/v2_ch8_5.pdf>, accessed on 28
July 2014.
40Letter of Raja to the prime minister dated 2 November 2007.
41Audit has reproduced in its report the case of a demand draft (DD) issued in favour of M/s Volga
Properties Pvt Ltd for 315.46 crore on 24 December 2007, that is, much before 7 January 2008. Also
M/s Swan Telecom had a bank guarantee of 50 crore provided by Punjab National Bank on 6
November 2007 and updated on 10 January 2008 in Mumbai.
42See ‘PAC Critical of PMO’s Functioning’, The Hindu, 29 April 2011.
43See Shalini Singh, ‘Newspapers Show PMO Analysed and Agreed with Raja’s Actions Before 2G
Scam’, The Hindu, 6 May 2014.
44See Shalini Singh, ‘Within 2 Weeks of the 2G Scam, PM wanted “Arm’s Length” from Raja’, The
Hindu, 19 March 2013.
45See Auditing Standards, 2nd Edition, 2002, in
<http://www.cag.gov.in/html/auditing_standards_ch4.htm>, accessed on 9 May 2014.
46‘Performance Audit Report on the Issue of Licences and Allocation of 2G Spectrum by the
Department of Telecommunications’, CAG, in <http://cag.gov.in/html/reports/civil/2010-
11_19PA/chap5.pdf>, accessed on 9 May 2014.
47See ‘Performance Audit Report on the Issue of Licences and Allocation of 2G Spectrum by the
Department of Telecommunications’, The Hindu, in
<http://www.thehindu.com/multimedia/archive/00288/Chapter_5_288338a.pdf>, accessed on 28 July
2014.
48Draft Report of the DG (P&T), 19 July 2007.
49Performance Audit Report on the Issue of Licences and Allocation of 2G Spectrum by the
Department of Telecommunications and Information Technology’, Report of the Comptroller and
Auditor General of India, No. 199, 2010-2011, p. 26.
50‘Govt Blames CAG for Flop 2G Auction’, Deccan Herald, 17 November 2012.
51‘Govt Still Hopes to Earn 40K Cr from 2G Spectrum Sale This Year’, Business Standard, 17
November 2012.
52See ‘Government to Make At Least 16,000 Crore in FY14 from Spectrum Auction’, The Economic
Times, 8 February 2014.
53‘CAG Vindicated, Cong’s “Zero Loss” Claim Busted’, The Pioneer, 15 February 2014.
54T.N. Ninan, ‘Zero Credibility’, Business Standard, 15 January 2011.
 6

SOUND & FURY: THE PAC & JPC SAGA

When you have senior people like the CAG making such solemn statements that have no basis,
should I call it presumptive malice, or just carelessness?55
—Kapil Sibal
Did the CAG overstep the mark? To a neutral analyst, the conclusion is inevitable: the CAG
must be complimented for doing a stellar job in pointing out many systemic flaws. In the long
run, the CAG reports will make the government stronger, not weaker. 56
—Sukumar Mukhopadhyay

hese are the routine comments that have appeared in the press on audits
that we have done. I need not give my opinion. It would obviously be biased,
as much as that of any government functionary. It would nevertheless be
worthwhile to ask: on what basis can ‘malice’ be attributed to the CAG
statements (or reports)? But more on that later.
The placement of the spectrum audit report in Parliament triggered a
storm in both houses. It was expected. The views were divided along party
lines. This was also expected. Parliament did not function for the entire
winter session in 2010. The opposition demanded that a JPC be constituted to
look into the ‘scam’. The government was not prepared to give in. The stand
taken by both was inexplicable. It was not clear what the opposition would be
able to establish through the JPC as the PAC could not even have its report
tabled in Parliament. On the other hand, considering the way precious
Parliament time was being wasted, the government would have to give in.
Finally, the JPC was set up in March 2011. Immediately afterwards, I
wrote to the chairperson offering our cooperation in providing any
clarification, background information or assistance that the committee may
want. This was against the backdrop of our experience of the PAC discussing
the 2G report.
Here, a word on the CAG’s role and position in the PAC would be of
immense use to the reader. The PAC comprises twenty-two members, fifteen
from the Lok Sabha and seven from the Rajya Sabha. They are elected for a
year and they elect a chairperson, who is traditionally from the main
opposition party. The PAC is advised by the CAG—who, though not a
member, has been described as an ‘adjunct’. The CAG always sits to the right
of the chairman and on the same side as that of the aforementioned MPs. The
officers of the department who are summoned from time to time sit on the
opposite side and are termed as ‘witnesses’. Ordinarily, the CAG and his
officers brief the committee in advance, before the arrival of government
witnesses, and then the CAG sits quietly as a mute spectator, merely passing
a chit or two to the chairman, if so required.
In the briefing to explain the 2G audit report to the PAC, our experience
was rather strange. R.P. Singh, the DG (P&T) who had prepared the report,
made a PowerPoint presentation and explained all its myriad aspects. Then
members sought clarifications. The process that followed has been best
described by newspapers the next morning: ‘PAC Grills CAG’. (Though the
deliberations of the PAC are meant to be secret, and the chairman specifically
draws the attention of all participants to this fact at the beginning of each
meeting, the details invariably find their way into the press next morning.)
Members of the treasury benches spared no efforts to punch holes in the CAG
findings. I have attended PAC meetings both in the state and the centre, but
never have I seen the accountant general or the CAG being faulted for the
findings, and that too with the kind of virulence that was observed in that
meeting. Our findings were well-founded. Despite the intense questions that
followed, we held ground. Our facts were invincible.
The attempt of the treasury benches was merely to protect the different
personalities involved in the decision making process—in fact, to defend the
indefensible. This is something the members themselves acknowledged at the
lunch following the meeting. Their mandate was to offer resistance, which
they did valiantly. Their approach was: the troublemakers were not Raja, the
DoT, the telecom commission, the PMO, the ministry of finance, or the
ministry of law—it was the CAG who was at fault. I have never seen the
PAC so clearly divided along party lines and this was repeatedly commented
upon by the chairman and some members during the meeting.
It may be recalled that the PAC for 2010-2011 was constituted in April
2010. The chairman, Murli Manohar Joshi, wanted to know the stage of our
audits for 2G. I informed him that we were in the process of conducting the
audit and perhaps we could place the report in the monsoon session of
Parliament. He had his own information and views about the 2G allotment
process and was not willing to wait for our audit to be completed.
Parliamentary procedure permitted the PAC to conduct suo motu
examination, and Joshi commenced collecting evidence without our report.
The PAC commenced their suo motu meetings on 30 June 2010 itself—
which was a good four-and-a-half months before the CAG’s report made it to
Parliament. He held six meetings even before the report was tabled in the
house. Since the CAG is tradition bound to attend all PAC meetings, my
officers and I attended them. The chairman and members examined witnesses
from the telecommunications department, ministry of finance, etc. In fact,
they had their own interpretations and calculations of loss.
In one of the meetings, the then finance secretary, Ashok Chawla, was
closely questioned by the members as to why the ministry had not computed
the loss to the exchequer in the allocation procedure which had taken place.
The finance secretary (very rightly so) informed them that the ministry of
finance did not have the wherewithal to compute such losses. In fact, since all
this is now out in public domain, I can narrate that a ruling party MP
observed that when the ministry of finance had calculated losses in the SEZ
policy (introduced by the ministry of commerce) at 1.25 lakh crore or so, it
was strange that the ministry was professing helplessness in the calculation of
these losses. He commented that if the loss was a hundred crore rupees or
less, maybe the government would not care at his level, but the country was
voicing its concerns over the loss in thousands of crores! The discussion of
this issue was very animated, and was surprisingly on pure merit of the case,
without partisan inputs due to political affiliations. This was carried
informally to the lunch table. The MP was firm about the validity of his
argument and insisted that the issue was not whether the transaction of Swan
was legal; the issue was that if 20 per cent to 40 per cent of the shares were to
be valued, and there was to be a price bid for a certain amount, then even a
tenth class student would be able to calculate that if the bid was for 1,500 or
1,600 and he sold 50 per cent of this amount, the loss would be assessed at
70,000 crore. He called it a black-and-white case as the company’s shares
had been valued on the basis of the price bid. He went on to reiterate that it
was obvious how much the government of India could have secured by
transparent bidding and asserted that even a section officer in the government
would be able to make this computation.
Now if an MP, and of the ruling party, makes such a strong assertion,
obviously the audit department has to take cognizance of that parameter for
computation. Not only so, another MP, a lawyer, asked an interesting
question—if it was known that a scarce national resource could fetch its true
value by competitive bidding, why was there no action by the ministry of
finance between 2001 and 2010? He faulted the ministry of finance on the
grounds that when so much noise was being made for the faulty basis of
collecting revenue from the sale of spectrum, the ministry was expected to
react proactively to defend the revenues of the government. These
discussions were taking place before the CAG had firmed its audit
observations; the CAG was privy to the exchange. Could we, thus, ignore
these comments in our report? I have elaborated on this as such comments
were being made before the CAG’s report had been placed in Parliament—
very objective comments, and absolutely on target. They methodically and
systematically analysed the issue and put forth views in a transparent and
theoretically sound manner.
We then switch to the very same MPs who were asked to discuss the
CAG report after it was presented to Parliament, and on which, at their
request, a presentation was made by DG R.P. Singh. The aim was to offer a
better understanding of the ‘technicalities’ in the report. By then, the battle
lines were drawn. The MPs tore into the CAG’s findings. Congress MPs
walked up to me during lunch time and said, ‘We have to ensure that the
prime minister’s name does not get dragged into this,’ adding, ‘What you
people presented appears so reasonable, but what do we do?’ Such are the
ways of parliamentary democracy as practised by some.
The moot question is this: now that we had computed loss of revenue on
the infusion of foreign equity in lieu of shares, why were we being faulted?
Could there be one set of views within the PAC, and another set against the
CAG in public, on the assumption that the secrecy of deliberations of
parliamentary committees would act as a shield? Gross double standards, are
these not?

R.P. Singh was a valued teammate. He met me often and we conversed more
as colleagues than as CAG and DG. We discussed his move from Chandigarh
to Delhi to facilitate the marriage of his daughters—this transfer had been
granted. He even discussed strained personal relations with some of his
seniors. What was unexpected, therefore, was for him to claim that he was
being compelled to draw conclusions which were unacceptable to him. I do
not think he can ever make that claim, and in fairness to him, he has not made
the claim that I ever pressured him or that if there was ever pressure on him
from any other quarter he brought it to my notice.
I need to dwell a while on the statements of DG (P&T) R.P. Singh. He
conducted the audit on schedule and in his first draft report of 31 May 2010,
had, for reasons adduced by him, assailed his branch officers’ assessment of
the loss of 48,374 crore and refixed it at 2,645 crore based on indexation.
For very obvious reasons, the government and all those in favour of the
government, who were critical of the CAG’s assessment, never questioned
his actions, or the fact that he overruled his subordinate officer in the same
way in which the CAG headquarter office overruled the DG (P&T). R.P.
Singh, after retirement, seemed to have second thoughts about the report
which he had signed and submitted. He challenged his own findings and
made much about being forced to approve a report which he claimed was
thrust on him. Fair enough. Anybody can have a change of heart and
conscience pangs.
But what did he say? Firstly, that the CAG’s report preparation was
influenced by the chairman of the PAC, Murli Manohar Joshi. Various
newspapers have quoted R.P. Singh on 24 November 2012 of having said
this. Indeed everyone who is anyone in the UPA picked this up and turned
against the CAG and the chairman of the PAC. The Indian Express ran the
report as their lead on the first page. Fortunately, by the next day, R.P. Singh
corrected himself and stated that it was not Joshi but a ‘PAC member’ who
suggested a formula to compute the loss.57 This was a U-turn,58 but a
factually correct statement, as we have seen in the preceding paragraphs. R.P.
Singh, on a prominent TV channel, clarified that he had not seen any
evidence of the chairman influencing the report.59 That then settled the issue.
On 24 April 2012, all newspapers had prominently reported that R.P.
Singh had told the JPC that the loss figures in the report were not his and in
any case ‘no one can work out the actual loss and calculating presumptive
loss would be bringing in the individual element of judgment which is
questionable’.60 This statement is strange. I only hope that R.P. Singh didn’t
actually say it. I say this as it is well known that in his first draft report R.P.
Singh had mentioned various figures. He mentioned impact due to non-
revision of the price based on the voluntary offer of an operator to be 65,725
crore. He erroneously believed that the operator withdrew the offer in the
High Court when it was withdrawn in the Supreme Court and that too two
years later. He mentioned that if 2G rates were to be pegged to the rates
discovered through auction for 3G spectrum in May 2010, the impact would
be 1,02,497 crore considering the price of 6.2 MHz of spectrum as base.
Additionally, his report included an amount of 36,729 crore calculated on
the total additional 2G spectrum beyond 6.2 MHz. This calculation was based
on 3G auction rates. So how can it be argued that 3G rates can be used for
one computation and not another? He then went on to mention a figure of
2,645 crore based on the cost inflation index.
He thus covered the entire gamut. He used cost inflation and 3G auction
rates. Soon his report was examined at length and inputs from the ministry of
finance and other departments were taken. The new computation brought out
the following criteria:

This was the draft report of the DG (P&T) dated 19 July 2012, which
was issued to the DoT and the ministry of finance. I’d like to assert that R.P.
Singh didn’t demur while issuing this report.
 Based on inputs from other departments, his final draft report contained
the following computation:

This final draft report was sent by R.P. Singh on 28 September 2010 to
the headquarters. Yet there was no objection, no protest, no voicing of any
disagreement. Having cleared all scrutiny, the CAG signed the bond copy,
and the processes that followed were merely mechanical; the printing of the
report and then the signing, first by the DG, and then the countersigning by
the CAG. This was also done without any protest.
Meetings of the JPC were another revelation. As mentioned earlier, I
had written to the chairman offering assistance of the department in the
deliberations of the JPC. This offer was accepted and we were invited for the
first meeting. We reached the Parliament annex, where the meeting was to be
held, before the appointed time. We were asked to wait a while as the JPC
was involved in internal discussions. We waited. And we waited. An official
conveyed the chairman’s request to wait a while more. We did. After over an
hour, we sought some tea from the service which had been laid out for the
staff. We were told that it could not be served till the JPC came out.
Parliament officialdom at its best. We were ushered in about an hour-and-a-
half later. The chairman was gracious and apologized for keeping us waiting.
It was only the next day that we learnt from the media that there was heated
deliberation about whether the CAG was to be seated with no ‘witness’ board
in front of him or otherwise. Thankfully, when we walked in, there was no
‘witness’ board in front of us. We made a presentation. There was no interest
in it. Members were out to disprove every word of what we had written in the
report. The discussions, ironically, were along partisan lines. The questions
asked and the observations made were hilarious at times, and on occasion, so
full of insinuation that it was difficult to maintain one’s composure. What
was remarkable was that members were happier believing all that R.P. Singh
had stated in the media, rather than what the CAG and his team of officers
from the department had to say.
One learned member in his opening statement stated that he had closely
read the articles in the Constitution pertaining to the CAG, and also the DPC
Act 1971, and did not find clauses which empowered us to conduct the kind
of audit that we were conducting. We could not believe our ears; if the
learned member’s views were to be believed, we had been conducting audit,
and performance audit in particular, with no statutory backing for decades!
Since I have separately dealt with this issue earlier in the book, I do not
propose to discuss our mandate once more. It should be sufficient to state that
the CAG has been empowered, under Section 23 of the DPC Act, as the sole
agency to decide the scope and extent of audit.
The JPC report as also the deliberations got hijacked along party lines.
No recommendations to remedy the situation have emerged. The entire
exercise, it is widely believed, ended up damaging the credibility of the most
important institution in a democracy—the Parliament. It was left to the courts
to take a final call, which is bound to evoke responses of activism. But when
some pillar of democratic functioning cedes space, some other institution will
move in to fill the gap.

Let it not be anyone’s case that there is no scope for discussion, or indeed
dissent, in the department. As the CAG, I had followed an open door policy;
officers did not even have to take prior appointment. They were at liberty to
walk in and discuss all issues, official and personal. Consultation and
consensus building was the hallmark of the department. Major issues were
always discussed in the senior management meetings, which were religiously
held every month. Opinions were freely aired. Hence, the question of a
colleague not being able to voice an opinion is totally contrary to the position
in the headquarters. I am not in the least suggesting that the CAG did not
exercise his judgement or discretion. Yes, it was exercised, but invariably
after reasons were recorded in writing. If an oral opinion was expressed by an
officer and did not meet with support, the officer would be personally
informed of the grounds for not accepting his viewpoint.
I should cite a couple of instances in support of my assertion. On 4
October 2011, I was aghast to see on the first page of The Indian Express the
following headline: ‘CAG’s Latest Ambition: Let Us Audit the Padma
Awards Now’.61 The report mentioned that the CAG had sought documents
from the ministry of home affairs (MHA) to facilitate an audit of the Padma
Awards. The MHA had declined to make these records available and had the
backing in this decision of the highest law officers in the government;
besides, the files had been seen by P. Chidambaram, the home minister,
himself a legal luminary. The news item went on to mention that the ‘CAG’
had a copy of the rules governing conferment of the awards; that the ‘CAG’
sought a brief note on the procedures for selection; that the ‘CAG’ persisted
with his request. The trend in the media in recent times is to label all draft
reports, even at the state level, as CAG reports—though the poor CAG or his
officers in the headquarters do not even have a whiff of such reports in the
early stages! In this case too, the poor CAG was learning of the proposed
audit for the first time from the newspapers. I was shocked. Besides holding
the opinion that we were wasting our time on an issue such as this one, I was
astonished that so much correspondence had taken place and that no one had
brought this to my notice.
A word on the audit procedure. The field officer for auditing the
government of India offices in Delhi is the director general of audit, central
expenditure (DGACE), Delhi. He prepares his audit plan and, after
discussions with the concerned deputy CAG, implements it. There are about
104 such field offices conducting audits round the year. It is thus only natural
that the CAG will not have knowledge of all the audits in progress at any
point of time, as about 3,000 audit parties are typically conducting audits in
different locations of the country. The news reporter, who referred to the
many transgressions of the ‘CAG’, was totally incorrect, as no
correspondence from the audit office mentioned the CAG. They were all
from the office of the DGACE. It is another thing that the DGACE is a
subordinate office of the CAG.
I made haste to my office that morning, and asked for the files on this
issue. There were obviously no files of this nature in the headquarters. They
were procured from the office of the DGACE. I was further astonished to
find that the DGACE had repeatedly corresponded with the home secretary
on the issue and even asserted his authority to see the documents. The home
secretary, instead of picking up the phone and speaking to the CAG or the
deputy CAG to sort out the issue, launched an exercise in file ‘fattening’,
seeking the opinion of attorneys and what not! I gave oral instructions to stop
the audit exercise forthwith. Later, after perusing all the records, on 7
October 2011 I noted the following:
I am surprised so much of thought, effort and correspondence has
been undertaken on what I would term a ‘non issue’.
We need to get our priorities right. On the one hand, we
complain of shortage of staff and inadequate manpower to conduct
regular audit. On the other hand we delve into a realm where ab
initio our mandate can be contested. I feel this has been rightly
contested by the MHA. I am also surprised that correspondence has
been undertaken with the Secretary, Home on an issue which at
best can be peripheral for the audit establishment.
Are we not required to chase the rupee? Is there not enough
expenditure in other sectors requiring our attention? Are there not
enough amounts of procedural irregularities which need our urgent
attention and advice? If there are: at this point of time, I would feel
that we need not fritter our human resources on issues which cannot
be defined as ‘core issues’.
The police commissioner not facilitating an audit of Delhi
police on the request of the MHA is not an activity which can be
compared with our taking suo moto action to audit ‘management of
Padma Awards’. The former is an issue on which the writ of the
MHA did not run. At no point of time do I want our ‘turf’ to be
questioned. In this case: it has been. We may be on grounds which
can be contested.
I also feel that before we write letters to officials such as
secretaries to major ministries of the central government, a prior
consultation with the headquarters is essential.
On a perusal of the file, I would suggest that we do not waste
any more time in legal examination or otherwise of this issue and
commit our scarce resources to procedural and expenditure
irregularities of a higher magnitude.
 Vinod Rai
The audit process was, of course, stopped that day itself, but the DGACE
wrote back the following:

Office of the Director General of Audit,

Central Expenditure, New Delhi 110002.
Sub: Audit of Management of Padma Awards and Compliance
Audit of Provisions of Indian Telegraph Act/Rules for interception
and monitoring of telephone messages

1. The Indian Express newspaper carried 2 reports in its issues dated 4th October 2011 and 5th
October 2011 on the actions taken by this Office relating to the Audit of the Management of
Padma Awards. These media reports conveyed an impression that the acts of this office were
capricious and arbitrary.
2. Subsequently, this office received your d.o. no 1/RC/F-134/Padma Awards/2011 dated 11th
October 2011 on this subject, which appears to be based on these media reports.
3. The media reports cast aspersions on the functioning of this office. As a result, the following
clarifications are placed below:
a) The documents sought from the ministry of home were based on the mandate
contained in Para 44 of the Regulations of Audit and Accounts 2007. These regulations
have the force of law. In our view, the text of this provision relating to the scope of
Compliance audit is clear and unambiguous (copy enclosed). Further, the Department has
carried out several compliance audits on topics that are non-financial in nature. Keeping in
view the clarity of these provisions and existing Departmental practices, any narrow
interpretation, should now be suitably reflected in Para 44 of the Audit Regulation. This
will ensure that field offices take appropriate action and that any disagreements are
avoided ab-initio.
b) The topic was selected keeping in view its high level of sensitivity. This is a vital
parameter in topic selection. Further, there is little doubt that the Padma Awards embody
high value. Extensive background work was carried out before selecting the topic. The
matter of Padma Awards has also drawn the attention of the Supreme Court and
Parliament. In fact, the Supreme Court had observed, at one stage, that the Govt.
Guidelines on the Padma Awards are amenable to abuse and are wholly unsatisfactory.
c) This topic was included in the Annual Audit plan of this office as a thrust area and
was approved by Headquarters.
d) It would be pertinent to mention that the compliance audit of Indian Telegraph
Act/Rules for interception and monitoring of telephones messages had also been taken up
on the basis of the above mentioned Audit Regulation. Copies of relevant correspondence
and minutes of the meeting with Home Secretary, were communicated to Headquarters.
All correspondence on this subject has been classified as ‘Secret.’ We have no reason to
believe that Headquarters did not support our action in this regard.
 It is in this context that the Padma Awards audit was actively pursued, since it too
constituted a compliance audit. As a result, the actions of this office have been
documented.
e) Finally, our correspondence and meetings with the ministry of home have been
courteous and carefully calibrated. Matters were taken up with the Home Secretary only
after exhausting other channels.
4. Please let me know if you need clarification on any part of the preceding text.
5. Keeping in view the adverse media publicity on this subject, I would request that this U.O. is
also seen by C&AG.

Roy Mathrani
Director General (CE)

In all fairness, the DGACE had exercised his judgement and gone ahead to
conduct the audit. After being told that it was the CAG’s opinion that he
should not proceed into the audit he wrote back to put forward his case.
Perfectly correct. In fact, Roy Mathrani, the then DGACE, discussed this
issue with me and I explained to him the need for us to prioritize the use of
our scarce human resources in the most optimal way. It would thus be a total
travesty of truth if one was to ever maintain that opinions within the
department are not freely expressed.
Let me briefly present another very interesting case. It may be recalled
that the Devas Antrix S-band spectrum issue attracted huge media attention.
The Hindu Business Line carried the following story: ‘CAG Goes After
Another Spectrum Deal’.62 This was another headline which made me sit up.
The article claimed that preliminary audit reports had established a loss of 2
lakh crore in the deal. This was an audit being undertaken by the Bangalore
branch office of the principal director of audit (scientific department). I
happened to be travelling to Bangalore a few days later and discussed the
audit query with the concerned officer. The senior audit officer who
conducted the audit meticulously explained the process to me and on being
questioned on the ostensible loss figures plainly told me that he was well
within his powers to do so! It is a different story that on closer examination of
that audit report in the headquarters we felt that the loss figure had no basis,
and hence dropped it.
If the viewpoint of certain sections of the JPC—who were aghast that
the CAG overruled the DG (P&T)’s figures of potential loss—were to be
acceded to, the CAG should not have exercised his discretion in dropping this
observation. No one raised a voice when the CAG overruled his subordinate
office in the Devas Antrix case. Why?
In yet another remarkable case, the principal director of audit (economic
and service ministries), while conducting an audit of an Ultra Mega Power
Project (UMPP), faulted the change of commercial conditions of Sasan
UMPP. His audit memo to the ministry of power quantified the quantum of
financial benefits based on the successful bidder to be 1,80,731 crore over
twenty-five years. This audit memo also found its way to the press. During
the finalization of the report in the headquarters, this financial benefit could
be justified to only 29,033 crore. The principal director was upset that his
viewpoint had not prevailed. Not only so, he recorded his disagreement
strongly.
Would you still insist on believing that the department does not permit
dissent? We appeared before the JPC over four sessions. We tried our best to
clarify every viewpoint that they were objectively willing to seek clarity for.
The PAC or the JPC could accept, reject or give their own recommendations
on the report. It is another matter, and that will be dealt with separately in the
book, that neither the PAC nor the JPC could prepare a unanimous report and
present it to the Parliament. That is an issue of empowering institutions of
accountability and ensuring that they are transparent and objective in their
functioning.

—————————
55Joji Thomas Philip and Samanwaya Rautray, ‘CAG Statements: Carelessness or Presumptive Malice,
Asks Kapil Sibal’, The Economic Times, 27 May 2013.
56‘Did the CAG Overstep the Mark?’, Business Standard, 12 May 2013.
57See Karan Thapar, ‘Not Defending Govt on 2G Report; No Connection with the UPA, Says R.P.
Singh’, IBNLive, 25 November 2012, in <http://ibnlive.in.com/news/not-defending-govt-on-2g-report-
no-connection-with-the-upa-says-rp-singh/307362-37-64.html>, accessed on 11 July 2014.
58‘R.P. Singh Does Joshi U-Turn’, The Pioneer, 26 November 2012.
59See, Karan Thapar, ‘Not Defending Government on 2G Report: R.P. Singh’, IBNLive, 25 November
2012, in <http://m.ibnlive.com/news/not-defending-government-on-2g-report-rp-singh/307362-
8.html>, accessed on 11 July 2014.
60Appu Esthose Suresh, ‘Loss Figure Not Mine: R.P. Singh Told JPC Same’, The Indian Express, 24
November 2012.
61Maneesh Chhibber, ‘CAG’s Latest Ambition: Let Us Audit the Padma Awards Now’, The Indian
Express, 4 October 2011.
62D.S. Madhumathi and Thomas K. Thomas, ‘CAG Goes After Another Spectrum Deal’, The Hindu
Business Line, 7 February 2011.
 7

THE PUNJABI WEDDING: COMMONWEALTH

GAMES 2010

Prithviraj Chavan who was then the Minister of State in the PMO, also initially alerted me that I
should be careful about releasing funds for the Commonwealth Games. The present CEC, S.Y.
Quraishi, who was my secretary in the sports ministry also shared my concerns against wasteful
expenditure in the CWG.63
—Mani Shankar Aiyar, former petroleum and natural gas minister
The CAG report is outdated—it is six to seven months old.64
—Sheila Dikshit, former chief minister of Delhi

he government hosted the XIX Commonwealth Games (CWG) in New

Delhi from 3-14 October 2010. It was a prestigious event, the largest-ever
sporting activity in the country, with about 5,000 foreign athletes and 2,000
officials participating. The games were conducted flawlessly. India got its
highest-ever medal tally, of 101 medals—thirty-eight gold, twenty-seven
silver and thirty-six bronze.
The organization of the games was a mammoth exercise involving
coordination between nineteen different agencies, so as to ready the
infrastructure needed to conduct the grand event. However, despite the fact
that the contracts to host the games were signed in March 2003, there were a
large number of reports as late as 2009 regarding tardy progress. While the
agencies involved in the preparations attempted to dispel the fears, the voices
of skepticism multiplied, and counter-claims were flying in the media and in
Parliament.
We were obviously reading these reports, which were appearing with
disturbing regularity. I would share my concerns regarding these stories with
my officers every other day. Apart from being auditors by profession, quite a
few of us were keen sportspersons—so the successful hosting of the games
was dear to us. One weekend, after the usual game of tennis, we got into a
serious discussion regarding the tardy preparations. We thought it was our
bounden duty to study the situation and advise the government with an
objective report on the state of preparedness of the different agencies for
conducting the games. We put together a very professional and capable team,
led by K.R. Sriram, the principal director of audit. We were clear that this
was not an audit under Article 151 of the Constitution, but merely a study
designed to assist the government with an objective assessment of the stage
of preparedness. This would provide practical and assistance to the
administration, and help the government take remedial measures and effect
mid-course corrections for those projects woefully behind schedule.
Towards this objective, audit conducted the field work between March
and May 2009, and brought out the report in July 2009, after holding the exit
conference with various stakeholders that month itself. I would like to
emphasize that the exit conference was in July and that the report was
submitted in the same month; hence our findings were totally up-to-date in
terms of the physical status of different projects.
Rather than appreciating the useful inputs provided to them and
identifying the high risk areas in terms of progress, the government became
defensive and started picking holes in the report. While I could understand
such statements emanating from officials trying to cover their inadequacies, I
was really disappointed when the chief minister of Delhi echoed similar
sentiments stridently, saying that our report was outdated and that the
projects were, in fact, on track.65 I wondered why a public leader of her
stature would jeopardize the reputation of her city, and the pride of the
nation, merely to condone the sloppy work of some officials.
It did not end there. As several agencies of the government were
involved, the cabinet secretary designated different officers with the
responsibility of replying to the deficiencies highlighted in the report. Little
did they realize that we were not seeking responses to our observations. The
entire exercise was to assist them in identifying the weak spots. If they felt
things were on track and we were off track, they could have ignored our
study and moved on.
While India and the rest of the Commonwealth saw one deadline
disappear after another, and desperately waited for reassuring voices from the
government, M.S. Gill, the sports minister at that time, made a most
distressing statement. Organizing the games, he said, was like hosting a
‘Punjabi wedding’—things would be done at the last moment, but all would
be done well. Describing the preparations for the games as jugaad, the
minister, continued with the wedding analogy, saying that ‘you keep
collecting ladoos [sweets] and flowers till midnight, but early morning you
get the garlands and ladoos and hope the baraat [wedding party] is happy.’66
The minister was living in a make-believe world, totally oblivious to ground
realities, and worst of all, applauding one of the most regrettable aspects of
our psyche—jugaad. We were shocked to hear him speak thus, and just to
rejig my memory, I went back to our report. What did it say?
The Aquatic Complex, the completion date for which was October 2009,
was only 42 per cent complete. The Siri Fort Sports Complex, again a
competition venue, was to be completed by December 2009; yet at the time
of filing the study report, it was only 46 per cent complete. The Yamuna
Sports Complex for archery and table tennis, which had to be completed by
December 2009, was only 7 per cent and 46 per cent complete for the
respective games.
This level of preparedness has to be compared with that of the city of
London for the 2012 Olympics. London had achieved 74 per cent completion
for the 2012 event in 2009. The idea guiding this was that at least two years
ahead of the Olympics, different venues would be available for training,
familiarization and for the testing of facilities. How did we fare in
comparison? We were hoping to have our spaces ready by the morning of 3
October 2010, the date of the inaugural ceremony, very much like a Punjabi
baraat. Professionalism? No. The government, from its highest echelons, was
not just prescribing jugaad but applauding it too.
The organization of the games was no doubt a mammoth exercise. There
were seventeen venues to be readied and tested to Olympic standards. Thirty-
one agencies had a variety of roles and responsibilities; evidently, a well-knit
coordinating arrangement had to be in place. Amongst the agencies were the
Delhi Development Authority (DDA) headed by the lieutenant governor of
Delhi, the state public works department (PWD) headed by the chief minister
of Delhi, and the central public works department (CPWD) controlled by the
ministry of urban development. The ministry of sports was the nodal agency.
The organizing committee, headed by Suresh Kalmadi, the chairperson, had
the ultimate responsibility for conducting the games. While these elaborate
arrangements looked tidy on paper, the main problem was that each
institution was headed by a chief who zealously guarded his turf. There was
no overarching body which could put all the pieces together.

It is instructive to go back in history to understand the creation of the

organizing committee and, indeed, the ‘birth’ of the XIX CWG in India. It
was in May 2003 that the Indian Olympic Association (IOA) submitted a
formal bid to the Commonwealth Games Federation (CGF). After the the
Government of India, the lieutenant governor of Delhi, and chief minister of
Delhi gave guarantees to underwrite any shortfall between revenue and
expenditure in September 2003, the CGF voted to allot the XIX CWG to
Delhi. The Host City Contract was signed in November 2003. The May 2003
bid document had detailed the nature of the organizing committee as a non-
profit, government-owned and registered society; the executive board was to
have a chairman, a government appointee, and the vice chairman would be
the IOA president. Very categorical.
Most mysteriously, in the course of the CAG’s performance audit
subsequent to the games being completed, the audit team discovered an
‘updated’ bid document which was datelined December 2003. No one could
explain the source of this document, given that the bid had been made in May
2003 and the Host City Contract signed in November 2003, one month before
this ‘updated’ bid document. There was no logic or relevance to an ‘updated’
bid document. Its irrelevance notwithstanding, the document was significant
in that there was a marked difference in the nature and structure of the
organizing committee from what appeared in the May 2003 document: while
the original document described the organizing committee as being a
government-owned registered society, the ‘updated’ document showed it as a
non-government registered society. Moreover, whereas the former document
had indicated that the chairman would be a government appointee, and the
vice chairman would be the IOA president, the latter document omitted any
references to the chairman necessarily being a government appointee or the
vice chairman being the president of the IOA. No one took responsibility for
this document. And yet it turned out to be the foundation for the final
organizational structure—the most credible document.
In fact, this document formed the basis of a letter that Suresh Kalmadi,
president of IOA, wrote to the prime minister on 23 October 2004, stating
that the then sports minister, the late Sunil Dutt, did not have the correct
perspective on the role of the IOA in the games. He also observed that the
games had been allotted to the IOA and, as such, the association was
responsible for ensuring the successful conduct of the games. Extending this
logic, Kalmadi went on to apprise the prime minister that the organizing
committee had to be formed by the IOA and approved by the general
assembly of the IOA. The prime minister chaired the first meeting of the
GoM—a core group constituted under the late Arjun Singh, the former
human resource development minister, to coordinate the work related to the
organization of the games—on 25 October 2004. The next day, Kalmadi
wrote to the prime minister again suggesting that he (Kalmadi) should chair
the organizing committee, and that the sports minister could chair the
‘steering committee’—a totally new creation.
Sunil Dutt wrote to the prime minister expressing surprise at Kalmadi’s
assertions.67 Even more interestingly, he expressed opposition to the minutes
of the GoM of 25 October 2004, asserting that the minutes of this GoM
meeting did not fully reflect the trend of the discussions.68 His assertion was
found to be true since, as per government procedure, draft minutes of the
GoM minutes has to be submitted by the ministry; what came back from the
cabinet secretariat after being approved by the prime minister was divergent.
In December 2004, the PMO wrote to the ministry of sports stating that
‘institutional arrangements’69 had been evolved for the conduct of the games
and that Suresh Kalmadi should be the chair of the organizing committee and
the executive board. This was endorsed by the GoM meeting of January
2005. On 10 February 2005, the organizing committee was registered under
the Societies Registration Act of 1860, with Suresh Kalmadi as the chairman
by name, and not as the president of the IOA.
Suresh Kalmadi had arrived.
Let me explain the model of governance formulated to deliver the games. The
organizing committee, the apex body, had 484 members (though this number
was later reduced to 454), with Kalmadi heading it. Twenty-three sub-
committees were carved out of the organizing committee to extend advice in
functional areas. There was another eighteen-member executive board of the
organizing committee. This had only two government nominees, and
Kalmadi chaired it. The day-to-day financial and administrative decisions
were taken by yet another body, the executive management committee,
chaired by Kalmadi, which had as members Randhir Singh, Lalit Bhanot
(secretary general) and A.K. Mattoo (treasurer).
The organizing committee thus became a parallel non-governmental
entity with no accountability to the government or concomitant controls to
ensure propriety and transparency, despite full funding from the government.
This, in fact, proved to be its undoing, as subsequent events revealed.
It is strange that we did not refer to the institutional structures which had
successfully delivered the Asian Games in 1982. The 1982 Asian Games had
a special organizing committee, with a cabinet minister level person heading
it (Buta Singh). This was not only the nodal coordinating body but also had
overriding powers over other agencies to ensure a holistic approach. None of
the glitches CWG 2010 went through seem to have affected the 1982 Asian
Games.
The other case in point is the conduct of the Melbourne CWG 2006. A
large Indian contingent—comprising, among others, officials of the central
and state (Delhi) government and the IOA secretary—visited Melbourne to
make an on-the-spot study of their governance structure. The regional
government of Victoria was made responsible for the overall supervision and
conduct of CWG 2006 through a specifically formed cabinet sub-committee,
drawn from key departments, and chaired by the prime minister. There was a
specially appointed minister for the CWG (Justin Madden), and he was
responsible for administering the Commonwealth Games Arrangements Act
2001. Under the Act, he had wide-ranging powers for the planning and the
delivery of the games infrastructure which included venues, project orders
and crowd management. This clearly established the fact that the games were
the sole responsibility of the government and a clear hierarchical and unitary
structure was created for its management. It is rather surprising that the huge
Indian contingent of 139 people who went to study this did not come back
and report these facts to their parent departments.
 Most importantly, it was only to help the government in this regard that
we took the initiative for the study report in July 2009. The purpose of the
study was to give specific recommendations—considering the complexity
and multiplicity of activities and the different claims and counter-claims of
the participating departments, there was a need to rethink the entire
governance model for the timely delivery of the games. There was no attempt
to criticize or find fault. The objective was to help the government in its
endeavour to stage a world-class CWG which would do India and Indians all
over the globe proud.
On the first page of the report, it has been specifically mentioned:
We hope that the report, which has been prepared by us as
independent auditors with an arm’s-length approach from the
implementing agencies, will serve as a checklist and a ready
reckoner to benchmark further progress toward preparing the
infrastructure and in staging the games […] Much time has been
lost and it is imperative to move forward with the new found sense
of urgency tempered by the realization that crashing of timelines
and bunching of decisions carry with it the heightened risk of
compromising transparency, accountability and structural safety of
the venues.70
Despite such warnings, with twelve days to go for the games, a suspension
pedestrian overbridge near Jawaharlal Nehru Stadium, the main venue,
collapsed.

An intriguing event in the CWG saga was the appointment of a high level
committee on 15 October 2010 (the games ended on 14 October 2010) to
examine irregularities, if any, that had been committed by any agency. This
came on the back of an atmosphere rife with allegations of wrongdoing.
Every activity invited adverse notice. The electronic media made a certain
toilet in the Games Village—and the organizing committee’s Lalit Bhanot’s
statement that the standards of hygiene in India are different71—famous
across the globe, to drive home the country’s unpreparedness. Possibly to
downplay such allegations and to quell the groundswell on the very morrow
of the closing ceremony of the games, the constitution of a high level
committee, with its chairman having the status of Supreme Court judge, was
announced by the government, to examine the ‘weaknesses in management,
alleged misappropriation, irregularities, wasteful expenditure and
wrongdoing in the conduct of the games’72 and recommend action. The chair
of the committee was a former CAG, V.K. Shunglu. This is rather strange
because, on the one hand, the government was crying hoarse about the
excesses of the three Cs—the CAG, the CVC and the CBI—and, on the other
hand, it was getting a probe done obviously in addition to what the CAG
would do—thus scoring a self-goal. I distinctly remember ringing up the
cabinet secretary, K.M. Chandrasekhar, to ascertain if what the papers were
saying was indeed true. Chandrasekhar, at home due to a foot ailment,
evinced no information. The argument that the committee would deliver its
findings earlier than the CAG audit also didn’t hold water, as the CAG audits
had telescoped the timespan and were appearing rather fast. Any further
collapsing of time would not be fair to the audited entities as they would not
get a fair opportunity to respond to the queries against them. In fact, we did
submit our report, all of its 743 pages, by about February 2011.
But that is not the issue.
The cabinet secretary wrote to me on 23 April 2011, enclosing extracts
of the recommendation of the chairman of the high level committee as sent to
the prime minister, addressing the oversight mechanism for the games. The
extract enclosed was pertaining to the CAG. One of the observations was:
CAG by statute was obligated to audit the expenditure of the CWG.
This expenditure was incurred by government entities, eg, CPWD,
DDA, etc, and the OC [organizing committee]. CAG reports from
2004 to 2009 did not display significant material on the entities.
Even though by that date all contracting had been completed,
considerable expenditure had been incurred and a great deal of
wrongdoing, which has now been elucidated, had taken place. CAG
did not audit the OC even though he was obligated to do so by
Section 14 of the Act, declined to do so in 2007 when the
government following a Cabinet decision requested him to take up
this work, and commenced audit at the end of 2008 under Section
21 which was inappropriate. It is another matter that the audit,
commenced in November-December 2008, remained incomplete to
this date. Clearly there has been a failure of audit.73
So added to all the politicians who were happily criticizing the CAG, here
was a former CAG faulting his two successors; an executive appointed
committee taking potshots at a constitutional body. Or was he meant to do so
—hit at the credibility of the CAG who had, by then, come out with the 2G
report?
It is a different matter that the high level committee was factually
inaccurate on the various audits of the organizing committee, the history and
results of which incidentally have been covered on the first page of a 743-
page report, in chapter three, ‘The Audit Approach’.
But that is still not the issue.
The enclosure of recommendations of the high level committee sent to
the prime minister and forwarded for my comments by the cabinet secretary
also had the following recommendation, inter alia.
CAG organization is a monocracy no longer conducive to
efficiency, outcome and accountability. A three member body
would obtain greater transparency in its operations. One member
should possess professional accounting qualifications, CA or its
transnational equivalent. This should not seem to exclude an Indian
Audits and Accounts Service officer from the triumvirate, who has
wide exposure to finance, audit and accounts and best international
practices in these areas. CAG accounts should be audited by a
professional auditor appointed by the Public Accounts Committee.
This was a very interesting recommendation—just the thing that the likes of
V. Narayanasamy, minister of state in the PMO, was reported to be partial to:
‘Making the CAG a multi-member body, as recommended by the V.K.
Shunglu Committee, is under the active consideration of the government’.74
He even publicly stated that the recommendation had been presented to a
committee of secretaries. What was a high level committee doing—
constituted to report on the conduct of the CWG—dabbling with
recommendations on the structure of the CAG, regarding which the
Constitution (in Article 148) is very clear: ‘there shall be a CAG’ [emphasis
mine]? And where did the question of the CAG’s accounts being audited
arise from?
We set about preparing our reply to the recommendation. One of the
best features of the government is its remarkable capacity to retain, access
and manage institutional memory—efficient even in the pre-digital era.
Government files throw light on the deepest of mysteries. It was recalled that
the national commission to review the working of the Constitution, popularly
known as the ‘Justice Venkatachaliah commission’ had also made some
references to such a suggestion in 2001. The CAG had examined the
suggestion and given its response. This response was dug out to facilitate a
seamless and consistent response.
Our position was that, globally, there are different models of unitary or
multi-member bodies of supreme audit institutions. While the professional
qualifications of the member(s) of the multi-member audit bodies differ from
agency to agency, the common thread running across multi-member bodies is
that they are empowered with quasi-judicial powers of audit and adjudication.
This is the provision prevalent in democracies with multi-member audit
bodies such as France, Korea, Norway, Japan, Portugal and Spain.
Commonwealth countries following the Westminster model of parliamentary
democracy such a Canada, UK, Australia and New Zealand have single
member audit bodies. The US Government Accountability Office is also
single member. They have the right to approach a court of law for
enforcement of audit rights such as access to documents.
We pointed out to the government that models such as the one in France
sit as quasi-judicial bodies (cour des comptes) and, besides having the power
to summon records or undertake physical verification, they are empowered to
take punitive action. The audit office is assisted by a public prosecutor,
advocate general and advocates who are also magistrates. Hence, the multi-
member body, with a chief called the ‘premier president’ of the cour des
comptes, has far-reaching powers, including the right to punish erring
officials. This applies to Norway, Spain and Korea too. In fact, the auditor
general of Austria, though having monocratic status, also has the power to
take punitive action. In Japan, the supreme audit institution includes a board
of audit, which is multi-member, with a chairman; they, too, have wide-
ranging powers.
We thus left the decision to the government after apprising them of the
models prevalent in different global jurisdictions. If the government were to
adopt a multi-member body, they had to bestow it with concomitant wide-
ranging powers—powers that the present CAG does not possess. It was also
pointed out that the CAG is presently assisted by a multi-member collegium
of five deputy comptrollers and auditors general who are professionally
qualified and rich in experience.
The government was also informed that, in September 2001—in
response to the queries from the Justice Venkatachaliah commission—with
the approval of the then CAG, V.K. Shunglu, a similar response was sent.
Obviously it was decided to continue with the monocracy. How the situation,
environment, government functioning and other parameters had changed,
prompting a fresh recommendation, were not known.
Even as Narayanasamy gave great publicity to the recommendation of
the high level committee, early November 2012 brought forth a huge number
of statements decrying the attempts of the government to dilute the CAG’s
powers. I did not enter the media space for any of these issues, but the moot
point is that making the institution multi-member does not in any way dilute
its powers. We have the classic example of the election commission, which
was made multi-member post T.N. Seshan, the tenth chief election
commissioner of India. If politicians and political parties generally fear any
agency, it is, in fact, only the election commission. Even today, issues such as
new bank licenses, gas price hikes, or the appointment of a new chief of
naval staff get referred to the election commission if an election is in the
horizon. Hence, making the CAG’s office multi-member and entrusting it
with the concomitant powers that go with such a model would have given the
institution the muscle that it woefully lacks today.
However, seeing the groundswell of opinion from all corners, the
government decided to recant the entire process. By 11 November 2012,
Narayanasamy came out with the usual denial of being misquoted or quoted
out of context by stating, ‘I did not say so [to make the CAG a multi-member
body]. In fact, I was not specifically asked about CAG […] There appears to
have been an unsuccessful attempt to put words in my mouth.’75
By December 2012, the government had done a complete one-eighty-
degree turn. Replying to a question in Parliament on the appointment process
of the CAG, the ministry of finance stated:
There is no urgent concern about CAG being partisan or working in
favour of the government or a particular political party. As [the]
custodian of public purse, [the] CAG has played the role of a
vanguard in reporting on financial irregularities, irrespective of the
government in power.76
Matters went a step further. To counter a possible perception in the Supreme
Court on the independence of the information commission—of which, some
members were recently-retired government officials—the attorney general
stated, ‘We have a CAG who was a former finance secretary. Can it be said
that he is loyal to the government?’77
The issue of the structure of the CAG appeared to have been laid to rest.
But what was the clinching factor accounting for the government’s change of
heart? The outcry against a perceived attempt at dilution? Not really. The
dominating factor motivating their U-turn was the rather late realization that
the Constitution (Article 148) stated: ‘There shall be a Comptroller and
Auditor General of India’ [emphasis mine]. Hence making it multi-member
would require a constitutional amendment, which in turn would require a
two-third majority in Parliament. This would have been impossible for the
government. This provision is distinct, quite unlike the provision for the
election commission, for which Article 324(2) of the Constitution reads: ‘The
Election Commission shall consist of the Chief Election Commissioner and
such number of other Election Commissioners, if any, as the President may
from time to time fix […]’ This realization was echoed by Narayanasamy
when he stated that ‘any change in the CAG’s basic functioning would
require an amendment to the Constitution, which was not even on the
government’s agenda’.78 Well stated, Narayanasamy. At least the limitations
were realized, albeit rather late.
As regards the suggestion by the high level committee to have the
accounts of the CAG audited by a chartered accountant appointed by the
PAC, the suggestion in itself was preposterous. The CAG is the supreme
audit institution in the country. A direct analogy would be that of the
Supreme Court, the highest court in the land. So the suggestion was
tantamount to a lower court being appointed by Parliament to audit the
judgements delivered by the Supreme Court. In any case, the department
explained to the cabinet secretary that the only items of expenditure incurred
by the CAG through the department’s own budget were salary, travelling
allowance and office expenditure. Budgetary devolutions towards buildings
and construction lay within the CPWD’s budget which, in any case, gets
audited. The CAG does not deliver any other governmental scheme or
project. Thus there is hardly any sizeable expenditure. Even so, Article 151 of
the Constitution vests the power of audit in relation to accounts (including the
accounts of the CAG and his department) with the CAG. Entrustment of the
audit of the CAG’s accounts to any other authority would be ultra vires of a
constitutional provision. This interpretation was upheld by the attorney
general at the time of framing of the CAG’s (Duties, Powers and Conditions
of Service) Act 1971, popularly referred to as the Audit Act.
I was conscious that questions such as ‘who audits the auditors’ would
arise. We were sensitive to this issue and, in any case, in the interest of
transparency, it would be a healthy tradition to have our processes and
procedures audited by a peer agency. Since, the CAG is the supreme audit
institution in the country, we decided to request any other equally competent
supreme audit institution to audit or peer review us. We thus asked the
auditors general of USA, UK, Austria and Australia if they could ‘audit’ us.
In response to our request, the national audit office of Australia agreed to lead
an international peer review team of thirteen persons, comprising five of their
auditors—two from Canada, two from Denmark, two from the Netherlands
and two from the USA. This team spent about seven months on the job, and
even visited some of our state-level offices, and gave its final report in
October 2012. This report was uploaded on our website immediately. It is in
the public domain. We have accepted and acted upon all the
recommendations. I sincerely feel there cannot be any other paradigm of
transparency or healthier practices.

I do not propose to dwell at any length on our findings while auditing the
different projects of the CWG, as they are dealt with in detail in the 743-page
report submitted to the government within six months of the completion of
the games. However, the modus operandi was significant, in that it left much
to be desired. Mismanagement and the flouting of governmental norms
appeared to have been the norm. Let’s look through a few vignettes which are
representative of the entire problem.

The IOA bid of May 2003 estimated an all-inclusive cost of 1,200

crore. As against this, the budget estimate in 2010 was 18,532 crore.
And this excluded the Delhi Metro Rail Corporation (DMRC), the Delhi
International Airport Limited (DIAL) and others.
The organizing committee consistently projected the games as revenue
neutral, if not as revenue surplus. This argument was trotted out to
justify the independence and financial autonomy of the organizing
committee. It’s a different matter that the organizing committee’s
revenue projections were seriously flawed. In March 2007, the revenue
 projected was 900 crore, and in July 2008 it was enhanced to 1,780
crore. There was no robust basis for this projection, other than possibly
increasing the revenue projections so as to match the rapidly increasing
operating expenditure—all in an effort to seemingly justify the financial
autonomy of the organizing committee. The revenue actually realized
was 173.96 crore.
Sponsorship revenue had been projected at 960 crore; 375 crore was
realized, and that too when two-thirds of this was contributed by the
public sector enterprises following a government directive to them to
take up sponsorship.
The organizing committee had projected 300 crore from
donations/raffle; the realization was 0.99 crore.
The organizing committee was responsible for tendering the catering
services in the Games Village as well as the various sporting venues.
The processing of the contracts meandered, taking over fourteen months.
The chairman cancelled the first tender, a single bid, against the
recommendation of his own officials. This was despite the single bid
document being opened on the verbal instructions of the chairman. Re-
tendering happened in June 2010. Transparency, quality and economy
became casualties.
The preparation of the venues was similarly haphazard. Various
projects, including the Shivaji Stadium, could not be completed on time.
When completed, this stadium has an east-west orientation, as against
the prescribed north-south orientation. Many projects lagged so far
behind schedule that they had to be delinked from the staging of the
games.

The CAG’s performance audit concluded that the organization of the games
was negatively impacted by inexplicable delays in decision making, which
put pressure on timelines, thereby creating artificial alarm and urgency and a
misplaced sense of emergency. This obviously necessitated exemptions from
laid-down governance processes. Contracting procedures became a casualty.
Many contracts were entertained on single financial bids, and some even on a
nomination basis. This led to an elimination of competition. Consequently,
the economy of expenditure and all hopes of protecting the government’s
financial interests were thrown to the winds. The inescapable conclusion
would be that this was, in fact, the intended objective. An article in the
Hindustan Times sums up the situation:
A year later, and nine months after the Games, government auditors
and financial investigators were staring at possibly thousands of
crores of public money that went down the drain or vanished from
the books of Kalmadi’s seat of power: the organizing committee.
But in its final audit report of the Games—one of its most thorough
probes—tabled in Parliament on Friday, the CAG said it had
sounded an alarm about the Games long before anyone sniffed any
foulplay. In a report submitted to the Centre in July 2009, the CAG
had said, ‘There was a need to rethink the governance model for the
Games Project.’ The study report, which is not really a financial
audit like the present one, could not have been more explicit. But
no one listened. That’s not all. Kalmadi and Co. had organized the
Youth Commonwealth Games in Pune in 2008. In that too, the
CAG had found unmistakable signs of fishy dealings. But again,
everyone turned a blind eye. The 743-page report goes through
every shred of evidence across 33 departments in the central and
state governments in Delhi and Maharashtra. In the end it pulls no
punches in naming the high and mighty at all levels—be it Delhi
Chief Minister Sheila Dikshit or even PM Manmohan Singh—
along with the now-jailed Suresh Kalmadi […]79
The unfortunate tragedy is that despite the detailed and obvious
highlighting of flaws, irregularities and certain obvious acts of mala fide,
there didn’t appear to be any credible attempt to establish accountability. It
will be a great travesty of justice if the big fish get away and only some lowly
engineers and officers land up in the CBI net. There will be no deterrence. No
demonstration effect. No learning from past mistakes. No good practice
absorbed and no established model of governance which can deliver a similar
event smoothly next time around.
Unfortunately, the whole CWG project was premised on a bedrock of
obfuscation, lies and misdirected representation designed primarily for
personal projection and aggrandizement. From day one, it was the messenger
who was being placed in the dock. From day one, the rogue elements were
being propped up. What was the signal being sent? The signal was that the
malfeasant acts of a coterie would be allowed to go unchecked; the leadership
would shut its eyes to the shenanigans and machinations of a few who had
been entrusted the prestige of the nation. Once this message emerged, the
others also joined the party.

—————————
63In an interview to NDTV, 4 July 2011.
64Commenting on the study report of the CAG on its preparedness for the Commonwealth Games,
2010. See ‘CAG Report 6-7 Months Old: Dikshit on Games 2010’, NDTV, 14 September 2009, in
<http://www.ndtv.com/article/india/cag-report-6-7-months-old-dikshit-on-games-2010-8520>, accessed
on 29 April 2014.
65See ‘No Need to Panic, Games on Track: Sheila Dikshit on Delhi Games’, NDTV, 31 July 2010.
66See Rajdeep Sardesai, ‘Organising CWG is Like a Punjabi Wedding’, IBNLive, 30 July 2010, in
<http://ibnlive.in.com/news/organising-cwg-is-like-a-punjabi-wedding/127870-5-23.html>, accessed on
29 April 2014.
67See ‘CWG Scam: M.S. Gill, Sunil Dutt Has Warned PM on Suresh Kalmadi’, India Today, 4 July
2011, in <http://indiatoday.intoday.in/story/cwg-scam-ms-gill-sunil-dutt-warned-pm-on-suresh-
kalmadi/1/143659.html>, accessed on 30 April 2014.
68See ‘Performance Audit Report’, CAG, in
<http://saiindia.gov.in/english/home/Our_Products/Audit_report/Government_Wise/union_audit/recent_reports/union_
performance/2011_2012/Civil_%20Performance_Audits/Report_No_6_CWG/CWG%20English%20-
%20Part-1.pdf>, accessed on 12 July 2014.
69See ‘PMO Appointed Kalmadi Despite Sports Minister’s Objections: CAG’, DNA, 5 August 2011, in
<http://www.dnaindia.com/sport/report-pmo-appointed-kalmadi-despite-sports-ministers-objections-
cag-1572851>, accessed on 30 May 2014.
70See CWG, in
<http://saiindia.gov.in/english/home/Our_Products/Other_Reports/Study_Reports/commonwealth.pdf>,
accessed 15 July 2014.
71See Himani Chandel, ‘Our Standard of Hygiene Different, Defends Bhanot’, The Tribune, 21
September 2010.
72‘Terms of Reference of High Level Committee to Look into the Organisation and Conduct of the
Commonwealth Games–2010’, Press Information Bureau, Government of India, PMO, 25 October
2010, in <http://pib.nic.in/newsite/PrintRelease.aspx?relid=66561>, accessed on 30 April 2014.
73See Amitav Ranjan, ‘CAG Monocracy, Not Accountable, Shunglu tells PM’, The Indian Express, 30
June 2011.
74Also see ‘Ministers Favour Multi-member CAG to Ensure More Transparency’, Deccan Herald, 14
November 2012, in <http://www.deccanherald.com/content/292067/ministers-favour-multi-member-
cag.html>, accessed on 30 April 2014.
75See Nagendar Sharma, ‘CAG Setup Not to be Touched: Narayanasamy’, Hindustan Times, 11
November 2012.
76See Saubhadra Chatterji, ‘Finance Ministry Gives Clean Chit to CAG’, Hindustan Times, 23
December 2012.
77See Soli Sorabjee, ‘The Big, Fat Indian Entertainment Show’, The New Indian Express, 8 December
2012.
78See Nagendar Sharma, ‘CAG Setup Not to be Touched: Narayanasamy’, Hindustan Times, 11
November 2012.
79Atul Mathur and Avishek G. Dastidar, ‘No One Heeded CAG’s Warning Bells’, Hindustan Times, 6
August 2011.
 8

COAL THAT TURNED TO GOLD: MINE BLOCK

ALLOTMENTS

The view of the government has been that rational bidding is unlikely to increase the cost of coal
when compared to notified price of CIL [Coal India Limited]. Through competitive bidding,
prerogative in the selection of a lessee will be exercised in a more transparent and objective
manner.80
—Dasari Narayana Rao, former minister of state (coal), Lok Sabha, 28
November 2007
Coal allocation was a pro-people move because an auction would have sharply raised the prices
of power, steel and cement.81
—Sriprakash Jaiswal, former coal minister

aking a statement in Parliament on 27 August 2012 on the coal block

allocation issue, the prime minister said, ‘[The] ministry of power, too, felt
that auctioning of coal could lead to enhanced cost of producing coal.’82
These flip flops in government are rather strange. Especially if we consider
the following noting of the coal secretary on 29 July 2004, which was
endorsed by the prime minister (as coal minister); he ordered that a system of
bidding be introduced:
 […] the present system of allocation in the changed scenario, even
with the modifications, may not be able to achieve the objectives of
transparency and objectivity […] it is submitted that even after
auctioning, the cost of production of coal from captive mine blocks
is going to be considerably less than the price such a consumer of
coal would have paid for CIL coal, and therefore the impact on the
price of end product can only be downwards i.e., the cost of
production of steel, cement or power would be less when using
captively mined coal than it would have been if CIL coal were
used.83
Speaking at the Idea Exchange programme of the Express Group, the power
minister, Veerappa Moily, said the guidelines would require companies in all
segments—ultra-mega, captive and merchant—generating power to
participate in bidding for selling electricity. The minister explained that his
ministry has framed new bidding guidelines to prevent private firms with
cheap captive coal mines from selling power at steep rates in the open market
and reaping windfall profits.84
The present governor of the RBI, Raghuram Rajan, in a column said,
‘India’s corrupt elites have moved from controlling licenses to cornering
newly valuable resources like land. The Resource Raj rose from the ashes of
the Licence Raj.’85
Whom do we believe? All represent the government. Should not the
government have a consistent viewpoint? And, if such inconsistencies were
emerging from the government, what was the CAG’s folly in this entire saga?
The decision to audit the ministry of coal?
Or, the decision to make the audit report public by placing it in
Parliament?

The production of coal assumed critical importance after 2003, when the
government of India announced its mission of providing ‘power to all by
2012’.86 To ensure that this declared objective was met, it was recognized
that the private sector would need to be encouraged to invest in power
projects. Consequently, it would be essential to provide them with assured
fuel linkage for their plants.
Coal is the most easily available domestic raw material for power
generation, apart from being the most reliable source of energy. More than
half the current commercial energy requirement is met by coal. However,
according to planning commission estimates, the gap between demand and
supply of indigenous coal had been widening and was expected to be more
than seventy million metric tonnes in 2010-2011. With imports being
expensive, private sector participation was encouraged in the coal mining
sector to counter the perceived limitation of Coal India Limited (CIL) to
enhance production to meet the requirements of the new power generating
projects.
So, how were we to give private operators access to these sources of
coal given that under the Coal Mines (Nationalisation) Act, 1973, coal
mining was the exclusive preserve of CIL? To fulfil the objective of giving
access to coal blocks to private power producers, the Coal Mines
(Nationalisation) Amendment Act, 1993, was passed in June 1993. This
amendment allowed Indian companies engaged in the generation of power, in
addition to the iron and steel producers, to engage in coal mining for their
captive use.
Till 1993, there were no specific criteria for the allocation of coal
blocks. Allocations were being done based on letters of recommendation
from the concerned state governments. From 1993, the allocation began to be
done by the ministry of coal (MoC), based on the recommendations of the
inter-ministerial screening committee, set up in July 1992, under the
chairmanship of the secretary (coal). The committee also comprised officials
from state governments and CIL. This committee was to scrutinize
applications for captive mining and allocate coal blocks for development,
subject to the statutes governing coal mining, following which the coal
minister would approve the allotment. In view of the increased demand for
coal in the tenth five-year plan, the growing number of applications for coal
blocks, and the significant volatility in the international prices of coal, the
government, in 2003, evolved a set of guidelines with the objective of
ensuring transparency and consistency in allocation.

The CAG conducts routine audits of government departments in rotation.

Such an audit was proposed and undertaken for the MoC in 2011. In the
course of this audit, in mid-2011, this procedure of allocation of coal blocks
—that is, one based on the recommendation of the screening committee—
came under scrutiny. The screening committee is expected to assess
applications based on parameters such as the techno-economic feasibility of
the end-use project, status of preparedness to set up the end-use project, past
track record in executing projects, financial and technical capabilities of
applicant companies and the recommendations of the concerned state
governments and ministries.87 The committee was thus required to scrutinize
each application and, then, depending on the merits and demerits of each
competing application, take a decision to allot the coal mine block to the
most deserving. Such criteria notwithstanding, the process that the committee
actually followed was not really clear from the records. All that the records
showed was that the committee met, deliberated and merely recorded the
name of the block allotted to a company, and the state where the end-use
plant existed. It is left to the reader to decide if transparency was a victim
and, if so, how audit erred in pointing out this lacuna.

As already mentioned, by 2004, the demand for coal had increased

substantially, and there was a view that it would increase further. Hence, in
July 2004, the then secretary of the department recorded that since there was
a substantial difference between the price of coal supplied by CIL and coal
produced through captive mining, there was ‘a windfall gain’88 accruing to
the allottee of the captive mine. He went on to state that the then prevalent
system of allocation by the screening committee was unable to achieve the
aims of transparency and objectivity in the allocation process and that ‘there
are pressures of all kinds’. He recommended that there was a need to adopt a
selection process which could be acceptable as demonstrably more
transparent and objective. Stating that the auctioning of coal blocks through
competitive bidding was a widely practised and acceptable selection process
that promoted the causes of transparency and objectivity, he recommended a
change in the system of allocation to one of competitive bidding.
This note set the cat among the pigeons.

Since so much has been said and written about the turn of events after this
note, let us wade through history and observe the twists and turns in the
course of policy change. The secretary’s notes of 16 and 29 July 2004 found
favour within the PMO. While the process of preparing a note for the cabinet
was on, the secretary received a note from the PMO listing certain
disadvantages of the recommended system. This note appeared to have been
handed to the PMO by a person who was aware of the discussions to change
the allotment procedure but himself did not favour it. Nevertheless, the listed
disadvantages were really of no consequence and were easily countered by
the department of coal in the draft note for submission to the cabinet. The
secretary stated in the draft:
There is hardly any merit in the objections raised against the open
bidding system [….] decision making through the Screening
Committee is much more tedious and difficult as Screening
Committee is subject to different kinds of pulls and pressure[s] and
is unable to take a decision in one sitting.
This in itself is a damaging indictment by the very person who was presiding
over the meetings of the committee and was seemingly bearing the strain of
the pulls and pressures. But then, changing the system was clearly not going
to be easy. On 4 October 2004, the minister of state for coal, Dasari Narayana
Rao, observed that any change in the procedure for the allocation of coal
blocks would invite further delay in allocation. As it was, the Coal Mines
(Nationalisation) Amendment Bill, 2000, envisaging competitive bidding as a
selection process for the allocation of blocks for commercial purposes, was
pending in the Rajya Sabha with stiff opposition from trade unions and
others. The minister also disagreed with the view that the screening
committee could not ensure transparent decision making and added that this
alone was not adequate ground for switching over to a new mechanism. He
went on to argue that no complaints had actually been received against that
extant system, as also that all stakeholders were happy with it and, in fact,
opposed any change. He recommended to the cabinet minister for coal that
the proposal for change need not be pursued.
This indeed was very ironic. The secretary was being overruled by the
person okaying the minutes of the screening committee which apparently
merely recorded the names of the companies being allocated the mine block
—and he was convinced that this system was transparent.
P.C. Parakh, then the coal secretary, continued undeterred in his
thinking that the extant procedure for coal mine block allotment would not
stand scrutiny, and hence pursued the matter with the PMO. It is on record
that he discussed the issue with the prime minister on 14 October 2004. At
this meeting, it was felt that since a number of applicants had requested for
allotment of blocks based on the existing allotment procedure, it would not be
appropriate to change the allotment procedure through competitive bidding,
especially when the applications had been received by the department on the
basis of the existing policy. Parakh went on to state that since the concept of
allotment through competitive bidding was first made public on 28 June 2004
at a stakeholder meeting taken by the department, it would only be fair to
have a cut-off date for considering applications according to the existing
procedure; the revised procedure would then commence for applications
received after 28 June 2004. This indeed appears logical and fair. This
proposal submitted by Parakh to the coal minister, who still happened to be
the prime minister, met with the latter’s approval.
The PMO finally communicated to the MoC on 1 November 2004 that,
as decided by the prime minister on 14 October 2004, all applications
received till 28 June 2004 would be considered by the extant policy and,
thereafter, allotment of coal blocks for captive mining would be made on the
basis of competitive bidding [Appendix 10]. This fact had to be suitably
incorporated in the cabinet note proposed to be submitted for the approval of
the council of ministers. This decision of the prime minister as the coal
minister should have set to rest all opinion on the issue. However, this was
not to be.
Soon, the regular coal minister, Shibu Soren, got back to his job. When
the decision taken by the prime minister, albeit in his capacity as coal
minister, was presented to Soren, he commented on 25 February 2005:
I have gone through the entire issue. As minister of coal, I am in
complete agreement with the views expressed by minister of state,
coal [Dasari Narayana Rao] in his note dated 4.10.2004 and as such
the proposal need not be proceeded further.
The minister was thus clearly overturning the decision taken by the prime
minister and concurring with his minister of state for coal. Both seemed keen
to continue with the extant procedure. It was, of course, purely fortuitous that
Shibu Soren had to step down once again and that the prime minister held
charge of the ministry of coal (yet again). The secretary, at that point, was
still struggling to get the draft cabinet note, seeking change in the allocation
procedures, approved. He sought approval of the note, clearly stating that the
decision on all applications received by 28 June 2004 (namely, the cut-off
date approved by the prime minister earlier for allocation through the extant
procedure) would have been taken by March 2005, and if the revised
procedure was not put in place quickly, pressures would again mount on the
government for continuing with the then prevalent procedure; this would not
be desirable in the interest of generating total transparency in the allocation of
coal blocks. The prime minister lent finality to the decision taken by him
earlier and recorded his approval of the cabinet note seeking sanction of the
competitive bidding system on 24 March 2005.
The tenacious Dasari Narayana Rao, however, had still not given up. He
continued to put his weight behind the existing system. Even as late as 4 July
2005, he argued that the full implication of a bidding-based system of
allocation needed to be carefully considered by the cabinet as there was a
general reluctance on the part of the power utilities to participate in bidding
due to cost implications. It is strange that the secretary and the prime minister
(as the coal minister) were oblivious to such fears and pressures.
Nevertheless, Dasari Narayana Rao’s efforts did bear fruit. What was even
more significant was that, fearing a change in the system, a spate of
applications had been received and these applicants particularly were putting
pressure, demanding status quo in the system. Their efforts, too, succeeded.
In a landmark meeting in the PMO on 25 July 2005, it was decided that a new
procedure for allocation could be introduced only after the Coal Mines
(Nationalisation) Act 1973 was amended [Appendix 11].
However, amending the act would take some time. Equally, the interest
of power generation and fuel linkage would be adversely affected if
allocation of coal blocks was to be stopped. Hence, in the interest of power
generation, the landmark decision was that the MoC would continue to allot
coal blocks for captive mining through the extant (screening committee)
procedure till the new competitive bidding procedure became operational.
Since I have called this a landmark meeting, I need to focus a bit on it.
Parakh, the secretary of coal, mentioned in the meeting that with the passage
of time, the number of coal blocks available for captive mining were
declining, while the number of applications were growing. This had made the
selection of an applicant for the allocation of a coal block for captive mining
vulnerable to criticism on grounds of a lack of transparency and objectivity. It
is in this context, he explained, that the MoC proposed to introduce
competitive bidding for the allocation of a coal or lignite block for captive
mines. The secretary of the power department was of the opinion that bidding
could increase the cost of power, as the cost of coal happened to be a
passthrough item for power tariff determination. This opinion was countered
by the joint secretary in the PMO, on the grounds that rational bidding would
ensure that the cost of coal so sourced would be less than that procured from
CIL or through imports. The secretary (coal) continued to be of the opinion
that the competitive bidding procedure would tap only a part of the windfall
profit that accrued to the companies which were allocated captive coal blocks
under the screening committee procedure. Representatives of state
governments felt that their inputs would be marginalized and the change
would lead to a centralization of power at the centre. However, the PMO and
the secretary (coal) assured all concerned that these anxieties would certainly
be addressed.
It was after incorporating all these viewpoints that it was decided to
continue with the allocation procedure for pending applications. Also, the
genuine concerns of the state governments were indeed sought to be factored
in.
Being convinced of the benefit and objectivity of the new procedure, the
PMO pressed for a follow-up to the decision taken in the 25 July meeting.
However, the minister of state continued to hold a different opinion. When
the PMO’s urgency was brought to his notice, he maintained that any
amendment to the act would be time consuming, and that the PMO had
allowed the department to proceed with allocation of mine blocks under the
extant procedure. Twenty coal and eight lignite blocks had already been put
on offer, for which applications had been received and were under process.
Hence, he maintained that there was no exigency to pursue the cabinet note
seeking approval of the council of ministers for a change in procedures, and
that the note could be submitted at another appropriate time.
Here, we have a classic case in which the department and PMO are
convinced of the need for a change and such an amendment has been ordered
by the prime minister. However, the minister of state continues to hold
another opinion. The issue does not end there. A new angle was then brought
up. The earlier decision to amend the Coal Mines Act was not considered
appropriate, and in a meeting convened in the PMO in April 2006, it was felt
that it would be more appropriate to amend the Mines and Minerals
(Development and Regulation) Act (MMDR Act), 1957, so as to cover all
minerals under competitive bidding. So it was back to square one.
This opinion was promptly endorsed by the minister of state. He felt that
the entire issue needed to be revisited, and withdrawing the current powers of
the state government had the potential to become controversial. Meanwhile,
Shibu Soren had re-entered as minister. He continued to support the views of
the minister of state. He went on to remonstrate against the MoC, advising
them to ‘refrain from making suggestions which had implications for federal
polity’.89 While discussions were on to ensure competitive bidding without
encroaching on the powers of the state government, yet another side act was
playing out. The MoC was separately examining the legality and feasibility
of introducing competitive bidding by making rules under the Coal Mines
Act read with the Mines and Minerals Development Act, by referring it to the
ministry of law. The ministry of law examined the issue threadbare and after
two years of protracted correspondence made it clear, in July 2006, that the
government had the option of introducing competitive bidding by merely
amending the existing administrative instructions. This opinion was reiterated
by the law secretary in his note of 28 August 2006.
The MoC have sought our opinion as whether the allocation of coal
blocks can be based on competitive bidding and whether the same
can be provided for by the rules made under the Coal Mines
(Nationalisation) Act 1973. This department had earlier advised
that there is no specific provision for auction through competitive
bidding in the Act and for making rules for allocation of coal
blocks for captive mining through competitive bidding process the
Coal Mines (Nationalisation) Act 1973 should be suitably
amended. When the proposal for the amendment for this said Act
was undertaken, a suggestion was received from the Principal
Secretary to the PM to the effect that it would be appropriate to
make such amendment in the Mines and Mineral (Development and
Regulation) Act 1957, which would be applicable to all minerals
covered under the said Act. The Administrative Ministry (MoC)
has stated […] that there is no express statutory provision providing
for the manner of allocating coal blocks; it is done through a
mechanism of Inter-Ministerial Group called the Screening
Committee which is headed by Secretary Coal and [has]
representation from the Ministries of Power, Steel, Industry and
Commerce, Railways etc. The Screening Committee has been
constituted by means of administrative guidelines. Since under the
 current dispensation, the allocation of coal blocks is purely
administrative in nature, it was felt that the process of auction
through competitive bidding can also be done through such
administrative arrangement. In fact, this is the basis of our earlier
legal advice. This according to the Administrative Ministry has
been questioned from time to time for want of legal sanction. If
provision is made for competitive bidding in the Act itself or by
virtue of rules framed under the Act, the bidding process would
definitely be placed on a higher level of legal footing […]90
What does one make of this detailed note of the law department? An in-depth
reading that is not selective, by any standards, would enable the reader to
draw the following conclusions:

1. The process of allocation of coal blocks through the screening

committee procedure was by an administrative order and there was no
specific procedure prescribed under the Act.
2. Though claimed by MoC that this procedure has been questioned from
time to time (evidence of which was not seen in the files), the
government continued to allot coal blocks through this procedure right
up to September 2007.
3. The ministry of law had indeed suggested in July 2006 that competitive
bidding could have been resorted to through administrative instruction.
4. However, on the suggestion of MoC to amend the Coal Mines Act,
when the proposal was submitted, the PMO revised its earlier opinion
and desired to seek an amendment of the Mines and Minerals
(Development and Regulations) Act (MMDR) 1957, which was
applicable to all minerals.
5. It is obvious that a legal basis—as in, an amendment of the Act—would
definitely be an advisedly superior arrangement. Yet this course was not
considered for thirteen years since the screening committee’s inception
in 1993 and the government continued to allot under the extant
procedure.
6. Also, it was the government which kept seeking an amendment to the
Act in its repeated references to the ministry of law. The ministry of law
had admitted in July 2006 that an administrative order would suffice.
7. In any case, all arguments for providing a legal backup for a better
 footing are flawed because whether it is the screening committee method
or competitive bidding, it is only a procedure.
8. While there was no supporting evidence in the form of legal problems to
back up their case for revising the procedure, the fact remains that
despite the amendment to the MMDR Act and the formulation of rules
in September 2010 and February 2012 respectively, the procedure is yet
to be operationalized. So much for expediency.
9. Most surprisingly, even as late as January 2012, the MoC continued to
believe that an administrative order would have been sufficient.

After a detailed reading of this entire noting, one arrives at the inescapable
conclusion that an administrative order of 1993 could have been replaced by
another administrative order. Such a change had the support of the ministry
of law. If the law ministry’s advice had been accepted, the process of
allotment by competitive bidding could have been introduced as early as
2006, while simultaneously pursuing the amendments to all relevant acts.
It is against this background that one gets the feeling that the MoC could
indeed have introduced the measures being sought had there been a will to do
so.

Coal allocation to private power producers was the pressing requirement of

the day. The onus of facilitating easy access to coal mine blocks was that of
the government. In doing so, it was incumbent upon the government to
ensure that the processes of allocation could withstand public scrutiny and
could project the government as a model dispenser of mandated discretionary
powers.
In the course of our audit of the coal allocations, on the MoC’s request
and in order to provide them adequate opportunity to project their views,
three exit conferences were held, on 25 January 2012, 9 February 2012 and 9
March 2012. The minutes drawn for these conferences were jointly signed by
the joint secretary, the MoC and the director general of commercial audit
(from the office of the CAG). In the first of these conferences (on 25 January
2012), the record of discussion states:
As regards amendment of Mines and Minerals (Development and
Regulation) Act, 1957, for auctioning of coal blocks through
competitive bidding, Ministry stated that the extant Law did not
 forbid auctioning of coal blocks through an executive decision
[emphasis mine].91
This conference was followed by two more conferences in which the
secretary to the department was himself present and no viewpoint emerged to
change earlier conclusions.

Let’s take up the arguments presented to maintain status quo. One argument
is that any change could jeopardize the process of coal mining and power
production. Let’s grant this argument—namely, forget transparency, as long
as enough coal is mined to feed the power plants which have to significantly
scale up power generation. Now, let us see what the record of production of
coal is, by those who were allocated coal blocks to enhance power
production.
It is found that out of thirty-two coal blocks allotted to private parties in
the period between 2004-2006, only three commenced production in 2010-
2011. Furthermore, of the forty-three granted in the period 2007-2011, none
had commenced production up to the end of 2011. The XI Plan target for coal
production was to produce 73 million tonnes. This production was to come
from eighty-six coal blocks. The achievement, with all the urgency shown in
the allotment process, was only 34.64 million tonnes out of only twenty-eight
blocks. Consequently, there was a shortfall of about 47 per cent. Such
tardiness forced the RBI to observe in its Annual Report (2011-12):
Lower coal production and supply shortage has emerged as a major
bottleneck in infrastructure sector. It also stated that the private
sector has added to the shortages by a dismal record of producing
coal out of the mining rights given to them. Therefore unused
mining rights need to attract deterrent penalties.
Thus, any argument that a change in policy could come in the way of
expediting early and rapid coal supply to power plants also gets negated.
In this context, I need to quote from the report of the high powered
committee for the allocation of natural resources, the Ashok Chawla
committee. In its report to the government (May 2011), the committee
observed:
The following national resources were identified for further study
 and analysis: Coal, Minerals, Petroleum, Natural Gas, Spectrum,
Forest, Water and Land. It was felt that while many of these
subjects were being administered and regulated by State and even
local Governments, the Union government still had a major role to
play in articulating the policy framework or otherwise influencing
the manner of their allocation.
The report further said:
Transparency relates to the openness in the activities that are
undertaken by any agency. With respect to decisions about
allocation, it is important that the reason why a person or firm was
allocated a reserve, and equally why another was not, be clear to
both.
The panel goes on to state:
[The] majority of coal [was] allocated through a relatively non-
transparent system, via the Screening Committee route. […Yet] the
private sector was unable to mine faster than the public sector […]
as only three of the mines allotted since 2003 are producing.
It has often been the argument of the government, and indeed was the
explanation advanced by the prime minister in his statement to Parliament,
that ‘it is true that private parties that were allocated captive coal blocks
could not achieve their production targets. This could be partly due to
cumbersome processes involved in getting statutory clearances.’92 This does
appear to be a defeatist argument; if the government is aware that the
processes are cumbersome and accords the process urgency, it is incumbent
on the government to take steps to ensure speedy clearances, since both state
and central government representatives are on the committees recommending
the allotments. It really does not behove the government to argue in
Parliament that its own procedures are cumbersome and that there are
complexities in the process of consensus building in our parliamentary
system. Such admissions amount to acknowledging that even for high priority
issues, our democracy cannot deliver early decisions!
Let’s look at a second issue—that of windfall gain calculated by the
CAG in the audit report. It is surprising that the government placed a
statement in Parliament, asserting that ‘even if we accept CAG’s calculations
that benefits accrued to private companies, their computations can be
questioned on a number of technical points.’93 The main thrust of the CAG’s
findings were that the objectives set by the government had not been
achieved by the government itself. How sincere the government was in the
entire process had been put to doubt. A greater show of alacrity and alertness
to issues like power generation would have leapfrogged the nation into an
entirely different level of economic development. The issue is not of
‘technical points’, raising trifles and stonewalling findings. The issue is of
flagging certain seminal issues, and letting the government take immediate
remedial measures. Audit, and performance audit in particular, is not about
advancing ‘technical’ arguments regarding audit findings. It is about
analysing the efficiency of government spending, the effectiveness of the
allocation of national resources and the leakages in the delivery process of
government schemes.
The CAG had highlighted a fact already observed in July 2004 by the
secretary of the coal department, that ‘a windfall gain’ was accruing to the
allottee of the captive mine, and that a bidding system would consequently
only tap part of the windfall profit. It was incumbent upon the public auditor
to inform Parliament of the extent or magnitude of these gains undeservedly
accrued to private parties and thereby, by implication, leading to a decline in
revenue accrual to the government exchequer. Auditors worldwide compute
such revenue losses. Indeed, the performance audit guidelines dictate that
such losses be computed. Hence, computation for the CAG was not an option
—it was obligatory.
Now, what are the guidelines for computation? The CAG could only
rely on authentic data which was already in the public domain. Any other
basis would be questionable. Two issues had to be computed—the quantum
of extractable coal reserve available and the cost of extraction. For the
quantum of reserves, what could be more credible than the government
constituted ‘expert committee on road map for the coal sector’?
Let us delve into this step by step. First, let us look at the methodology
adopted for computing extractable reserves. In the case of open cast mines,
we accepted the geological reserves (GR) for each block as given in the mine
plans (where available). In other cases, figures were given by the Coal
Controller Organization’s mine plans or the ministry of coal itself. Hence,
there could not be any dispute, as the government itself was the source.
In the next step, where the mine plan was available, the extractable
reserves out of the GR, as mentioned, were taken. Where the mine plan was
not available, audit strictly followed the computation of the expert committee.
What was this computation? It goes as follows: If the GR was 100 million
tonnes, the net GR was assumed to be 10 per cent less, namely, 90 million
tonnes. The mineable reserve (MR) was assumed by the committee to be 10
per cent further less, namely, 81 million tonnes. The extractable reserve or
recovery ratio in open cast mines was further computed at 10 per cent less
than the MR, hence 72.9 million tonnes or say 73 million tonnes. Audit based
its computation on this conservative estimate of 73 million tonnes for every
100 million tonnes given in the GR. As against this, the expert committee
assumed the recovery ratio to be in the range of 90-95 per cent of the
mineable reserves in the open cast mines. Can audit be faulted if its
computation was based on a conservative 73 per cent? Given that the MoC
had also stated that the MR for open coal mines would range between 75 to
80 per cent of GR, audit had indeed been conservative in taking an average of
73 per cent. In mixed mines, the extractable reserve had been taken by audit
as only 37 per cent of the GR. How much more conservative should audit
have been? The extractable reserves of open cast mines and mixed cast mines
allocated to private parties, based on the aforementioned method, was found
by the CAG to be 6282.50 million tonnes, which is mentioned in the report.
Coming to the second issue: that ‘cost of production rises significantly
from mine to mine due to varying geo-mining conditions’. Obviously it does.
Again audit relied on authentic data: put out by CIL and authenticated by a
CAG audit.
It is a fact that CIL and its subsidiaries operate though open cast mines
spread over eight states. The geo-mining conditions, method of extraction,
stripping ratio, nature of land, surface features of land, number of people in
villages affected by the project, inaccessibility of the project, the availability
of infrastructure on the site, etc. vary. Undoubtedly, the cost of production
will differ substantially. This would also apply to the fifty-seven open cast
mines which were then recently allotted. In each of these too, the
aforementioned facts would vary. Therefore, wouldn’t using the average cost
of production of CIL, which accounted for the majority of coal production in
the country and its subsidiaries, provide an accurate measure? Also, reserves
of coal in a mine block can be extracted over its lifetime, as per its mine plan.
All these mine blocks had still not commenced production, even after the
lapse of the normative production date. In the absence of future year-wise
quantities of coal extracted, cost and sale price, financing cost, etc., audit had
used the available average audited figures of CIL for 2010-2011 for each of
these factors as a reference outline. How can this be faulted?
On the third issue addressed by the government through the statement of
the prime minister in Parliament—that CIL had generally been mining in
areas with better infrastructure and more favourable mining conditions, as
against the difficult geological conditions of the private mine block allottees
—I merely quote the government itself. The MoC stated in its note to the
cabinet on 26 October 2007:
Experience shows that cost incurred by the private sector in captive
mining of coal is far less compared to that by the public sector coal
companies because they [the latter] carry with them many socio-
political responsibilities. Experience in respect of block already
allotted does not support the contention that these are difficult or
inferior blocks as compared to those with CIL.
Need I say more? Rather strange that the prime minister is made to make a
statement in Parliament which is contrary to that in government files.
The statement in Parliament goes on to state, ‘Therefore, aggregating the
purported financial gain to private parties merely on the basis of average
production costs and sales price of Coal India Limited would be highly
misleading.’94 Now it would not be incorrect to assume that before the
company decides to take up investment in an end-use project, it would
ascertain the quantity and quality of coal reserves available in the mine
blocks. All bidders have the freedom to get the data available in the
geological report and have it analysed. More importantly, the government
itself had observed this in a meeting (earlier referred to) in the PMO on 25
July 2005. It said that ‘rational bidding would ensure that the cost of coal
through the competitive bidding route is less than that of coal sourced from
CIL or imports.’95
In the light of all this, it would only be fair to conclude that since CIL is
the largest producer of coal in India, producing about 80 per cent of the total
requirement, and operating mines in all kinds of locations across the country,
it has developed infrastructure in all these places over a period of time. Any
private developer applying for a block would certainly keep these facts in
mind. Thus, unless the cost of production of coal from a captive mine is less
than the price of coal obtained from the nationalized coal sector, no
entrepreneur will opt for captive mining. Moreover, for a captive coal
producer, the only other option is getting coal from CIL. Hence, it is only
natural for audit to compare costs and profits as available with CIL.
The issue then arises, if one has to give a monetary value, what value
does one attach? Coal was being purchased by power producers from three
sources. The first was by imports. The average import price of non-coking
coal sourced from Indonesia during 2010-2011 was 3,678 per tonne
(Indonesia supplied most of our non-coking coal imports). The second source
was the coal sold in e-auction by Northern Coalfields Limited, a subsidiary of
CIL based in Singrauli. Their average e-auction price for 2010-2011 was
2,387 per tonne. The third and the major source of coal supply in the country
was that which was mined and supplied by CIL. Audit utilized the only
creditable data available in the public domain—that of CIL. CIL is regularly
audited by the CAG, so its accounts and other details can be taken as
authentic. From the audited accounts of 2010-2011, the average sales price
for all grades of coal sold by CIL was taken as 1,028 per tonne. This was the
most conservative price too. Similarly, the average cost of coal mined by CIL
was found to be 583 per tonne. The MoC has indicated, after due
verification, that the financing cost ranges from 100 to 150 per tonne. To
be on the safe and conservative side, audit assumed it to be 150. Thus, while
the average sale price was 1,028, the average cost was 583 plus 150,
namely 733. This leaves 295 as the financial benefit per tonne ( 1,028
minus 733). Multiplying this amount with the extractable coal reserves—
6,282 million tonnes—one got the figure of 1.85 lakh crore as the financial
gain which would accrue to the captive mine allottees and from which a part
could certainly have been garnered by government, if auctions had been
resorted to.
Let us, for the sake of argument, set aside all that the federal auditor has
observed vis-à-vis windfall gain accruing to private parties while not
adopting competitive bidding for allotment. Let us follow the government
pronouncements on this issue—one made by the government in a statement
filed before the Supreme Court. For those not familiar with it, let me explain:
in a civil writ petition, the Supreme Court constituted a central empowered
committee (CEC) to monitor approvals given by the forest advisory
committee within the ministry of environment and forest (MoEF) for
diversion of forest land for mining purposes. The Supreme Court had directed
the CEC to file its response with respect to projects cleared by the forest
advisory committee after 15 September 2006. The CEC had requested the
MoEF to provide details of all clearances given by it by 15 September 2006.
The MoEF thereafter had provided the details. These details formed the basis
on which the CEC made its submission to the Supreme Court. The first and
fourth report of the CEC dealt with the projects submitted by M/s Sainik
Mining and Allied Services, a joint venture with Orissa Mining Corporation
in the Amelia project area of Orissa. The CEC had recommended cancellation
of the allocation by the forest advisory committee for two projects having
about 400 million tonnes of mineable reserves in Orissa. What, however, is
mindboggling is the startling revelation made by the CEC in the note arguing
for the cancellation. The note refers to the experience gained from bids
received for six coal blocks for commercial mining allotted to the MP State
Mining Corporation, which were put up for auction by the MP Corporation.
The bids received from the joint venture partners were 2000 per cent of the
royalty payable for coal. The royalty rates payable vary from 55 to 130 per
tonne. At a mean royalty rate of 100 per tonne of coal, 2000 per cent of its
royalty amount comes to 2,000 per tonne. If this rate is applied to the 400
million tonnes of mineable reserves in these two mining projects in Orissa,
the financial value of these mineable resources would amount to a staggering
sum of 80,000 crore. The CEC has gone on to plead before the Supreme
Court that it would be in public interest that instead of allowing a private
party to corner this huge benefit, sincere efforts be made to make the states
the beneficiary of this wealth. This is the monetary value that the government
committee affixes for 400 million tonnes of reserves. In the case of allotted
captive mines, the reserves were 6,282 million tonnes. How can the
government argue that the computation of windfall gain by audit was flawed
and over-assessed?
I need to deal with one more issue in this context. Learned economists
have commented that audit gave a wild figure of windfall gain of 1.85 lakh
crore but did not compute the net present value (NPV) of the same. Such
learned economists and prominent persons have sarcastically called the CAG
‘our famous CAG’,96 and suggested that the department is economically
illiterate. The issue regarding NPV was considered. In the case of other audits
such as the Delhi International Airport or the Ultra Mega Power Projects, the
revenue stream was known, but in the extant case, the rate at which the sale
price of coal would change over the years, the rate of change of the cost of
production, the cost of financing, and the schedule of production of these
fifty-seven mine blocks could only be assumed. Making assumptions across
all these factors would make any such calculation unsustainable and thereby
vulnerable to criticism. Hence it was only to provide an order of magnitude at
2010-2011 prices, that the calculations were made. Even if discounting had
been done to arrive at the NPV, we would have possibly projected an annual
increase of 10 per cent in cost/sale price, and we would then have discounted
at, say, a discount factor of 10 per cent. We would have got to an NPV of
financial gain of 2.40 lakh crore, at 11 per cent of 1.86 lakh crore and at 12
per cent of 1.49 lakh crore. There is no substantial difference. Hence, why
all the ire?

As I had mentioned in the chapter entitled ‘Media Policy’, a preliminary audit

of coal blocks, which hadn’t even been seen or approved by the CAG,
reached the hands of the media. The Times of India report with the leaked
findings caused a furore.97
Eventually, the dust settled. Eventually, too, the truth emerged—from
the government as well as in the Supreme Court. Such were the headlines
which appeared in newspapers on 10 January 2014: ‘Govt. admits to
irregularities in coal blocks allocation. Allotments were made in good faith
but could have been done in a better manner, Attorney General tells Supreme
Court’.98 Audit had been vindicated.
The coal mining saga is a remarkable case study of people in power
who, when provided the mantle to lead, faltered the moment a challenge
arose. How many in the decision making hierarchy would be able to stand up
and declare that they were of the genuine opinion that despite a decision
being taken to auction mine blocks in November 2004, it was at the altar of
expediency, and to meet the needs of genuine power producers, that
allocations continued via the screening committee process? How many would
stand up and declare that, indeed, decisions were taken only on merit and
only the most deserving of applicants got the minefields? Does an alarm
signal not go off in the mind of the seasoned administrator that pressurizing is
done only by the undeserving, and the undeserving are those who do not seek
to set up an enterprise to earn normal profit, but are the rent seekers? More
importantly, how did we believe that such decisions would not come into
public domain? These are questions that demand answers.
—————————
80See ‘Action of Coal Blocks’, Press Information Bureau: Government of India, 28 November 2007,
in <http://www.pib.nic.in/newsite/erelease.aspx?relid=33332>, accessed on 2 May 2014.
81Rohini Singh and Himangshu Watts, ‘Coal Allocation Was Pro-People: Sriprakash Jaiswal’, The
Economic Times, 20 June 2012, in <http://articles.economictimes.indiatimes.com/2012-06-
20/news/32335932_1_coal-blocks-pc-parakh-coal-secretary>, accessed on 2 May 2014.
82‘PM’s Statement in Parliament on the Performance Audit Report on Allocation of Coal Blocks and
Augmentation of Coal Production’, Speeches: Prime Minister of India, 27 August 2012, in
<http://pmindia.gov.in/speech-details.php?nodeid=1208>, accessed on 2 May 2014.
83See Sujay Mehdudia and Girija Shivakumar, ‘Bid to Deflect Focus from Wrongdoers: Ex-CAG
Official’, The Hindu, 17 October 2013.
84See ‘Firms Must Bid to Sell Captive Coal Power: Moily’, The Financial Express, 13 September
2012.
85Raghuram Rajan, ‘What Happened to India?’, Project Syndicate, 8 June 2012, in
<http://www.project-syndicate.org/commentary/what-happened-to-india>, accessed on 2 May 2014.
86‘Power for All by 2012’, Ministry of Power, in
<http://www.powermin.nic.in/indian_electricity_scenario/power_for_all_target.htm>, accessed on 2
May 2014.
87Based on the Prime Minister’s Statement in Parliament on 27 August 2012.
88See Sujay Mehdudia, ‘Coal Secretary Warned of “Windfall Gains” in Captive Mining Allotments in
2004’, The Hindu, 28 March 2012.
89See Ashish Khetan, ‘Coal Spill’, Tehelka, Volume 9, Issue 32, 11 August 2012.
90See, ‘Performance Audit of Allocation of Coal Blocks’, CAG, in
<http://saiindia.gov.in/english/home/our_products/audit_report/government_wise/union_audit/recent_reports/union_per
accessed on 21 August 2014.
91Minutes of the Exit Conference Held on 25 January 2012.
92‘PM’s Statement in Parliament on the Performance Audit Report on Allocation of Coal Blocks and
Augmentation of Coal Production’, Press Information Bureau: Government of India, 27 August 2012,
in <http://pib.nic.in/newsite/PrintRelease.aspx?relid=86761>, accessed on 5 May 2014.
93See ‘From the Prime Minister, a Lengthy Defense on Coal’, India Ink: The New York Times, 27
August 2012, in <http://india.blogs.nytimes.com/2012/08/27/from-the-prime-minister-a-lengthy-
defense-on-coal/?_php=true&_type=blogs&_r=0>, accessed on 6 May 2014.
94Ibid.
95See G. Srinivasan, ‘Seeing a Sellout’, The Hindu, in <http://hindu.com/thehindu/thscrip/print.pl?
file=20120921291803600.htm&date=fl2918/&prd=fline&>, accessed on 7 May 2014.
96Shekhar Gupta, ‘National Interest: Anybody Out There?’, The Indian Express, 19 May 2012.
97Sanjay Dutta, ‘CAG: Govt Lost 10.7 Lakh Crore by Not Auctioning Coal Block: “CAG Draft
Report” Estimate of “Undue Benefits” to Firms is 6 times 2G Loss,’ The Times of India, 22 March
2012.
98Business Standard, 10 January 2014.
 9

A SLIPPERY DEAL: GAS EXPLORATION

[The] government has signed Production Sharing Contracts [PSCs] with E&P [Exploration &
Production] operators for exploration of hydrocarbons under the Pre-NELP and NELP regime
[New Exploration Licensing Policy]. Some of the blocks are producing properties and involve
large stakes of the government in the form of royalty, profit, petroleum, etc. In the recent past,
concerns have been voiced in some quarters about the capital expenditure being incurred by
some contractors in the development project awarded under NELP. […The] cabinet secretary in
his report presented to the government on gas pricing issue had recommended strengthening of
the monitoring and audit mechanism of the government. Keeping in view the above
recommendations, the large stakes of the government in the form of royalty, profit, petroleum,
etc., and considering the sensitivity of the matter, we request that C&AG may carry out special
audit of blocks listed in the annex for the years for which regular audit has already been carried
out. This is proposed in addition to the regular audit mechanism.
—M.S. Srinivasan, secretary in the ministry of petroleum & natural gas
(MoPNG), in a letter to V.N. Kaul, CAG, 13 November 2007.99

In response to M.S. Srinivasan’s letter to V.N. Kaul, and after due

examination of its legal position as also mandate, the CAG accepted the
request to carry out a special audit. A reply was sent to the MoPNG on 5
March 2008 that whilst a performance audit of the PSCs was already being
conducted, the selected blocks would also be audited under the ongoing
performance audit.
Thereby started a long saga. This saga merits narration as it shows the
government-private sector relationship. It shows how in all contracts between
the government and private operators—in arrangements such as a joint
venture (JV) or a public-private-partnership contract (PPP)—the interests of
the government are the first casualty. We have not heard the end of PPP
contracts. In fact, the government may well have to resort to more such
contracts to ensure an increased flow of private financial and human
resources in the development of physical infrastructure in the country. It is
thus essential that we learn from previous contracts, assess the pitfalls, and
ensure an upgradation of skills in the government so as to efficiently handle
the design of such contracts in the future.

Prior to 1991, hydrocarbon exploration was primarily undertaken by the

companies in the public sector. It was only post 1991 that the government of
India decided to open hydrocarbon E&P to private sector companies. This
included foreign companies as well. These private companies could
undertake exploration in gas fields which had been discovered and were only
partly developed by the national oil companies.
In 1997, the government of India formulated NELP. This was a quantum
jump in the field of hydrocarbon exploration in the country. All companies,
whether private or public, had to compete with each other to obtain E&P
licenses. This policy initiative had the objective of attracting large global
players in the field of gas exploration, as these companies would enter the
sector with private capital and technical proficiency.

In the public-private partnerships that were devised for hydrocarbon

exploration, PSCs formed the basis of the roles and responsibilities of each of
the signatories to the contract. The document clearly delineates the guidelines
and procedures to be followed for each of the stages, namely exploration,
development and production. It also indicates the norms guiding cost
recovery, and the rules for sharing profit petroleum between the government
of India and the contractor.
PSCs also lay down the basic premise on which the government is
entitled to conduct audits of the book of the contractor. Section 1.9 of the
PSC specifies the audit and inspection rights of the government, and Section
1.9.1 stipulates that the government shall have the right to inspect and audit
all records and documents supporting costs, expenses, receipts and income
such as contractor accounts, and all books, invoices and cash vouchers for
each financial year. The government (as per Section 1.9.2) may conduct the
audit through its own representatives or through a qualified firm of chartered
accountants (CAs) or a reputed consulting firm.

Let us first spend a short while trying to understand what hydrocarbon is, and
why it is so important and sought after.
A hydrocarbon is an organic component constituted entirely of hydrogen
and carbon. Natural hydrocarbons available on the earth occur in crude oil.
When hydrocarbons are extracted in the liquid form they are called
‘petroleum’ and when they are extracted in a gaseous form they are referred
to as ‘natural gas’.
Now let us consider natural gas. Natural gas, found largely in rock
formations, either on land or under the sea, comprises carbon dioxide,
nitrogen, methane, hexane, butane, etc. It is a fossil fuel formed when layers
of buried plants, gases and animals are exposed to intense heat and pressure
over millions of years. The energy that the plants had originally obtained
from the sun is stored in the form of chemical bonds in natural gas. It thus is
rendered non-renewable, because it cannot be renewed in a human timeframe.
Natural gas, then, becomes an energy source, often used for heating,
cooking and electricity generation. Besides, it is also a major feedstock for
the production of ammonia, which is utilized in fertilizer production. The
other great characteristic of natural gas is that it burns more cleanly than fuels
such as coal and oil, and produces less carbon dioxide per unit of energy
released. A coal-fired electric-fire generator unit emits around 2000 pounds
of carbon dioxide for every megawatt-hour generated; this is double of that
released by natural gas. In India, compressed natural gas (CNG) is used for
automobile fuel as a cleaner alternative and has found widespread
acceptance.
Considering how vital the final products are—namely power, CNG,
fertilizer—the demand for the exploration and production of natural gas and
petroleum hydrocarbon is huge. Since all natural resources belong to the
nation or the government of India, controlling the entire process of extracting
and supplying such resources has begun to assume great importance.
In the light of the future importance and need for the extraction of
hydrocarbons, the government of India created the directorate general of
hydrocarbons (DGH) in 1993 to facilitate the comprehensive management of
oil and natural gas; ensure a balanced regard for the environment; supervise
safety measures; and develop the technological and economic aspects of
petroleum activities. The directorate was set up under the administrative
control of the MoPNG. It was meant to be an advisory and technical
regulatory body, and was entrusted with the responsibility of implementing
NELP and monitoring PSCs.
A very peculiar phenomenon, which we discovered during the course of
our audit, was that unlike other regulatory bodies which are directly funded
by the government of India, the DGH was funded from grants sanctioned to it
by the oil industry development board. Being funded by the board created
scope for conflicts of interest. It also rendered the DGH free of Parliament’s
budgetary controls. As a result, there was a lack of accountability.

The audit of blocks was undertaken by the CAG on the specific request of the
government. Thus, to facilitate the process, it was the responsibility of the
government to ensure the availability of records from the contractor.
However, when it was time for audit to commence, the CAG team could not
get access to any of the records from the operators. The audit team took up
this issue with the ministry in September 2008, to no avail. Upon subsequent
reminders, a meeting was held in the ministry with the operators. The
operators still did not make the records available, despite the ministry
requesting them to. Finally, after the audit team made many unsuccessful
attempts and visits, without getting any access to the records, I had to write to
the then petroleum minister, Murli Deora, on 26 August 2009, seeking his
intervention. The minister replied to my letter the very next day assuring me
that the records would be provided.
Based on the assurance of the minister to ensure unfettered access to
records, in September 2009, A.K. Awasthi, the then deputy CAG in charge of
this audit, wrote to the petroleum secretary stating that, subject to the timely
provision of records, we would be completing fieldwork within three months
and would be in a position to prepare the first draft of the audit report for
discussion with the ministry by the end of February 2010. (This turned out to
be a fond hope indeed!) The letter requested the ministry to issue instructions
‘at a high level’ so that records would be promptly provided. The CAG had
agreed, in the first phase, to audit four blocks where exploration was being
done. These were Panna-Mukta, Tapti, KG-D6 and Hazira. It hoped to
conduct a performance audit of the office of the DGH, and the PSCs.
Some of the operators and, in particular, Reliance Industries Limited
(RIL), questioned the mandate of the CAG. It was clarified by us that the
scope of our performance audit covered only the ministry and the office of
the DGH, and not private operators of the individual blocks. Hence, if we
accessed the records of the operators, it was only to verify the government’s
revenue—the nature of profit petroleum that was accruing, how likely it was
to do so in the future, and that the interests of the government were
adequately protected. Thus, the operators’ records that were perused were
only supplementary to the scrutiny of the records of the ministry and DGH.
It had also been repeatedly clarified that the guiding criterion in the
entire audit process was the PSC. This PSC had two contracting parties,
namely the contractor and the government. Each of these parties had their
rights and obligations. The norms for audit, thus, were to ascertain whether
these rights and obligations have been appropriately satisfied. For this reason
the audit report had, in the initial stages itself, clarified:
[…] all our enquiries and findings emerge from, and are limited to
the PSC. We do not profess to go into any procedure or policy
related aspects leading to the conclusion of the PSC. Taking the
PSC as given, we have merely examined the contractual obligations
of the signatories to the contract viz. the Government and the
private contractors. Our findings are totally guided by the written
words of the contract.100

Leaving the details aside, I propose to merely sensitize the readers about the
findings of the audit and the broad rationale behind it. We will also briefly
see in what form the major terms in the PSC were implemented. Let me
broadly classify these findings into three categories:

1. Discovery related findings

2. Procurement related observations
3. Design of the investment multiple formula for profit sharing

Let us examine the discovery related issues first. Starting from the very initial
stages, any exploration for hydrocarbon involves a search for the deposits
below land or sea. Once an area, through seismic surveys, is identified as
potentially having sub-surface deposits of hydrocarbon, and the exploration
company feels confident of its availability, exploratory wells are dug.
Success in finding gas or oil renders the area as ‘discovered’, or else it is
declared dry. Then, after delineation, the discovered area is further explored
through appraisal drilling to ascertain the quantum of gas or oil likely to be
present under the earth’s surface. If the company appraises the quantum
appearing to be available as commercially viable, it labels the area as a
‘commercial discovery’. Then begins the process of development, involving
the preparation of the field development plan, so as to extract gas efficiently
and economically. This involves drilling the wells, installing the platform and
laying the pipelines to convey the extracted products.
In the case of the Krishna Godavari (KG) basin, the contract was
awarded to the RIL consortium in 2000. Gas was discovered, the declaration
of commercial discovery was notified in 2003 and 2004, and a development
area of about 339.41 sq km was delineated. The Initial Development Plan
(IDP) as per the provisions of the PSC was submitted for a production
delivery rate of 40 million metric standard cubic meters per day (mmscmd) of
gas. The probable gas reserves were assessed as 5.3 trillion cubic feet (tcf).
This IDP, envisaging a total capital expenditure (Capex) of US$2.39 billion,
was approved by the management committee comprising RIL and DGH
officials in November 2004. However, this IDP was sought to be revised by
RIL through an addendum IDP submitted in October 2006, indicating a
production rate of 80 mmscmd of gas with the availability of gas reserves
probability being enhanced to 11.3 tcf. Evidently, the Capex would be higher
and thus, was pegged at US$5.2 billion up to 2009, with gas being produced
from twenty-two wells. However, yet again in November 2006, RIL
submitted a revised proposal indicating expenditure in two phases. Phase I
was pegged at US$5.2 billion and Phase II at US$3.6 billion, thereby hiking
the total to US$8.8 billion with fifty wells being dug for producing gas. This
Amended Initial Development Plan (AIDP) was approved by the
management committee in December 2006. These approvals were all as per
the provisions in the PSC.
The PSC has been so designed as to permit the private contractors ample
time and opportunity to fully explore the contract area within the timelines
decided. It also stipulates that they relinquish, in a phased manner, the areas
where the probability of availability of hydrocarbon is poor. This enables
them to retain areas where they have discovered hydrocarbon, while at the
same time ensuring that the relinquished portion can be reallocated by the
government through a competitive bidding process to other potential bidders.
There could be those contractors whose views and appraisals on hydrocarbon
prospection differ from those who relinquish such areas. Thus, as per Article
4 of the PSC, a contractor can proceed from Phase I to Phase II of exploration
only after relinquishing 25 per cent of its total contract areas. In the case of
RIL, they moved on to Phase III with no relinquishment, which is tantamount
to squatting on half the area despite having drilled wells only in one corner of
the total area.
The DGH objected to this non-relinquishment in May 2004 as it
contravened the PSC provisions. RIL would not accept the interpretation by
the DGH of the PSC conditions and refused to relinquish the 50 per cent area.
Ultimately, it was the DGH who, confronted with the sustained technical
assertions of RIL, was compelled to acquiesce in May 2005.
This happened repeatedly. In the entire process of protracted
correspondence, RIL’s proposal right from April 2004—that it would not
relinquish any area and instead retain the whole contract area as ‘discovery
area’—appeared to have been accepted, and RIL moved to Phase III. By now,
the management committee, with only one DGH representative, permitted the
retention of the whole area. This issue was also examined by MoPNG who,
after seeking a lot of clarifications, accepted the contractor’s claims in July
2008. The final result of all this correspondence, including references to the
ministry and clarifications from the DGH, permitted RIL to retain the entire
7,656 sq km as ‘discovery area’ without digging wells in it, in direct
contravention of the PSC contractual conditions. This militates against the
spirit of NELP, which seeks to maximize the exploration efforts and
minimize hoarding of exploration acreage. The efforts of RIL were aimed at
retaining the entire area without themselves exploring it and without letting
another contractor do so either! Irrespective of any technical argument, how
they were allowed to breach contractual provisions merely on their assertion
that there was a ‘strong likelihood’ of the presence of hydrocarbon in the
entire area is not understood. After five years of correspondence, the
contractor merrily proceeded with his own scheme of development with the
government toeing the line.
Now let us proceed to the procurement related activities of the
contractor, which would require us to examine yet another aspect of the PSC
implementation. Every procurement activity, especially when it is of large-
value equipment, needs to push for the most competitive of prices. This is
normally done by generating competition among suppliers. When such high-
priced equipment is procured based only on a single financial bid, the
element of competition is obviously lost. The concerned provisions in the
PSC also do not provide adequate assurance that government interests are
indeed being protected. This observation is being made on the basis of the
fact that typically PSCs around the world have uniform provisions. However,
a comparison of the procedures under PSCs, say in Bangladesh, reveals that
high-value procurements, namely those exceeding US$5,00,000, require a
prior approval of the management committee. Such a clause is non-existent in
the Indian version of the PSCs. In fact, the procedure laid down for such
procurement in Indian PSCs merely entails providing the management
committee members with a list of pre-qualified entities/vendors as approved
by the operating committee. It does not stipulate any prior approval of the
management committee. Thus, the contractor is free to make any large-value
procurement, no doubt on government account, without as much as getting
the approval of the management committee.
Such laxity towards the government’s financial interests is observed in
the following procurement. RIL issued a request for proposal (RFP) for
charter hiring of a floating, production, storage and offloading (FPSO)
facility. A vendor qualification criteria (VQC) was prepared and was
approved by the operating committee, which had no government nominee in
it. A company called AKER Floating Production (AFP) of the AKER Group
was one of the companies selected for issuing the RFP. Following due
process, it was declared as the single acceptable bidder; this was after
rejecting the bids of the seven others on technical grounds. It is rather strange
how AKER was selected as it suffered from the following inadequacies:

It had no experience of operating and monitoring a FPSO facility.

It had not submitted any technical or commercial checklist.
It had not attached the preceding three years’ financial audited
statements. As an alternative, it had merely submitted its parent group’s
(AKER Group) annual report and that too for the preceding two years
(2004, 2005).
In fact, the most surprising fact was that AFP was only incorporated on
 14 March 2006, which was after the expression of interest (EOI) being
issued in January 2006 and the VQC analysis in September 2006. So
much for the three years’ experience criterion!

These were the CAG’s findings in the audit report. It is not that audit came to
its own fancy conclusions, as is normally the argument trotted out for all
audit findings. We elicited replies from the contractor and the ministry a
number of times. In fact, in this particular case, the contractor argued that
AFP had indeed submitted audited financial statements for the two years, as
required in the RFP101—a rather strange argument as AFP was formed only
in 2006. What they had enclosed, as mentioned earlier, was the financial
statement of the parent company for two years.
As you may recall, a total of eight bids from vendors had been received
by RIL. Out of these six were rejected. While those six were rejected
outright, two vendors, namely AFP and SBM, held discussions with RIL and
submitted revised bids which were entertained. Clearly such facility for
revisions should have been given to all or else it would be against the spirit of
the tender. Also, in whose presence the bids were opened is not known. The
price bids of the technically non-qualified bidders were neither sealed nor
intact, thereby providing no assurance that these were not opened. On the
other hand, the price bid of AFP was not even signed. They had submitted
price quotes for optional items, but left them blank ostensibly for ‘open book’
cooperation with RIL.
Why am I, and indeed even audit, labouring over the selection process?
Because the full cost of the procurement is recoverable by the operator from
the government. In pursuance of such provisions in the PSC, it is only fair for
the operator to take all steps to provide assurance to the government that the
cost is being minimized and that its interests are being protected. Since the
management committee had no say in the procurement procedure, there was
all the more reason for exhibiting extra care to ensure transparency,
competition and cost effectiveness.
What was the cost of this acquisition? US$1.094 billion! Indeed, there
were, in all, eight acquisitions from the AKER group, all on single financial
bids. The total value of the acquisitions, including the FPSO, was US$2.1
billion. The auditor can hardly be blamed for trying to ensure that the
government’s financial interests had indeed been adequately protected.
I now venture into a territory, which had given rise to concerns being
expressed in and out of Parliament, of the company inflating capital cost.102
Understandably, hydrocarbon exploration, and that too in offshore areas,
requires heavy capital investment. There needs to be an element of incentive
built into contracts which require private sector participation, to make it
attractive for them. Thus, justifiably, the PSC is premised on a scaled formula
of profit sharing between the government and its contractors. The critical
parameter in the PSC is the investment multiple (IM). This is an index of the
capital-intensive nature of the exploration project, namely the capital
expenditure on exploration relative to the income. The slabs are designed
such that the higher the capital intensity of the project, the lower the ‘profit
petroleum’ which would accrue to the government. The converse would
apply, namely, a low capital intensity project would imply a higher share to
the government. Thus, in the formula, capital intensity and the IM have an
inverse relationship. What does this mean? In simple language, if the
contractor were to spend a large amount on the capital account of the project,
the ‘profit petroleum’ would decline and hence, the share of the government
would remain low. For example, in this particular contract, the contractor was
entitled to recover 90 per cent of his cost from ‘profit petroleum’, which
begins to accrue from the sale of gas. Let us assume he invested 100
million, and the profit is 10 million per month. He has a first claim of 9
million from this towards the cost incurred by him and the balance 1 million
will be shared between him and the government in proportion, as per the IM
applicable to that slab. He thus gets to recover the entire 100 million in the
first eleven months or so (at the rate of 9 million per month) and only then
share a larger proportion of the profit with the government.
Let us study the table that follows. We see from it that private
contractors would have inadequate incentive to reduce capital expenditure
and, in fact, substantial incentive to front-load capital expenditure and delay
movement to higher IM slabs. The table illustrates that up to an IM of 2.5, the
government’s share remains below 30 per cent. If the IM were to become 2.5
times or more, the government share would increase to 85 per cent.
 Interpreted in another way, there is no incentive for any contractor in a
PSC design as this to control capital expenditure. If the private contractor
were to hike capital expenditure upfront, while it would help build up the
contractor’s infrastructure for higher production in the long run, it would save
the contractor’s own cost as this capital expenditure would be to the
government account. It would also depress government revenue. This is a
kind of double jeopardy for the government and, hence, there were concerns
in Parliament and the media of ‘gold plating’.
When the management committee, the only body to have a government
representative, has no voice in the operational control of the E&P operations,
there is no protocol by which the government can influence capital or any
expenditure pattern. Not only was the PSC stipulation not well suited to
government interests, but the intensity of oversighting exercised by the
government officials to protect government revenue also appeared to be very
lax. Every time the operator made claims, it was acceded to by the
management committee, DGH or MoPNG. Each time that it was acceded to,
the action was detrimental to government interest.

Let it not be argued that the auditor has to be contrarian. In fact, even before
the PAC, the contractor had said, ‘Retention of discovery area is a geological
issue and not an accounting issue. As such it is best settled by technical
experts, which was also done in this case.’103 Our refrain was that every time
matters were settled between the government and the operator, it was to the
government’s detriment.
Let it also not be said that the office of the CAG did not have adequate
technical knowledge in this area. At that point of time, we had fourteen
auditors working in the supreme audit authority of Oman and its oil
exploration agency. These auditors were auditing exactly what would be
defined as NELP-type models in India. If these auditors could acquire
knowledge to audit issues of the International Atomic Energy Agency and
highly specialized scientific and defence installations, gas exploration would
not be rocket science to them. Indeed, they had already mastered rocket
science!
Now, a word on the claim of the contractor before the PAC—that the
CAG did not give him an opportunity to explain how, in geological terms and
as per the PSC, the entire block did qualify as a ‘discovery area’ (and thus did
not have to be relinquished). This observation was less than fair. The entire
chronology of events as delineated in Table 4.1 of the audit report,104 deals
with the arguments of the contractor vis-à-vis not relinquishing the entire
block. These arguments were received through the ministry. Not only so, the
report in these pages deals only with the assertions of the ministry and
contractor.105 Now, note the tenor of the reply of the ministry and how
similar it is to that of the contractor, when it says: ‘The issue under
examination is highly technical and Ministry is relying upon the DGH, the
only technical arm of the Ministry of Petroleum and Natural Gas’.106
Admittedly, the issue is technical. It would suit various interests to announce,
‘It is best settled by technical experts.’ We tried our best, devoted umpteen
man hours to understanding and analysing their arguments and have
reproduced them in our report—with the only difference that we did not
capitulate to their arguments and recorded the following: ‘The reply of
MoPNG is not tenable and merely restates the opinion of the contractor,
DGH and MoPNG summarized in the chronology indicated in the Table
4.1’.107
The procedure of having an entry and exit conference was scrupulously
followed in this particular audit too. While seeking a convenient time and
date for the exit conference, the deputy CAG in charge of this audit wrote the
following to G.C. Chaturvedi, the then secretary of petroleum:
As per our audit methodology and practices, the exit conference is
held with the secretary of the ministry concerned. The ministry
may, if it deems appropriate, also call the representatives of the
operators at the time of the discussion of the operator specific
points at the exit conference.
To this, G.C. Chaturvedi replied, fixing 12 July 2011 as the date for the exit
conference. Confirming this date, he wrote:
In the forenoon, the session could be dedicated to the concerned
operators, wherein reps of my ministry would be present. Operators
 have been given relevant extracts of the draft audit report and they
will [be] furnishing suitable replies to your office before the exit
conference. In the afternoon, discussions may be held with officials
of the DGH and the MoPNG.
This correspondence conclusively establishes that the auditor did very
scrupulously follow all the guidelines and had provided ample opportunities
for all those concerned to articulate their arguments.
In fact, my argument would be, why blame only the auditor? The high
level committee constituted by the government for suggesting a roadmap for
efficient distribution of scarce natural resources under the chairmanship of
the former finance secretary, Ashok Chawla, examining the IM-based profit
sharing formula in the PSC, drew the following conclusion—that the system
gives ‘incentive to [an operator to] increase his investment, or front-end his
work plan’108 in order to see that the threshold where government’s profit-
take rises rapidly is not reached. The committee goes on to state:
The relationship between the pre-tax investment multiple [PTIM]
and the share of contractor profit petroleum changes dramatically
once the PTIM crosses 2.5, with the government’s share increasing
from 28 per cent to 85 per cent. It is useful to remember that this
schedule is bid by the operator, and not determined by the
government.109
The report of the committee was not placed by the government in the public
domain. I requested the cabinet secretary for a copy of it. He stated that since
it was not in the public domain and action was being taken on its
recommendations, he was unable to share it with us—us being the
government auditor, the CAG, who was requested by the government to do
the audit. We thus downloaded the report from the internet. Its veracity has
not been questioned as yet. We need to quote further from the committee
report:
[…] a high share of some pre-tax IM will help to win the bid,
depending upon the financial mode of evaluation used, but it does
raise concerns that such a radical change would provide very strong
incentive for any operator to adopt all investment and strategies
possible to ensure that the pre-tax IM stays within 2.5 limit.110
Does the auditor need to say more? The CAG has only observed:
Given the similar conclusions that two independent agencies viz.
the Chawla Committee and Audit have reached as regards the
adverse impact of the Profit Sharing Mechanism in protecting
Government of India’s share (linked to the IM), designed in the late
1990’s, there does seem to be enough ground to re-visit the
formula. The PSC as drawn up then, was with limited expertise
available with the Government of India at that point of time. In
view of the fact that we have now gained the knowledge, there is
need to conclusively address the issue in respect of future PSCs.111
Audit recommended the discontinuation of the outmoded IM-linkage
profit-sharing formula, especially the present one, which permits total
flexibility and authority to the private contractor. Further, audit proposed the
biddable profit sharing percentage to be a single percentage as this would
reduce the incentive for skewed volume and timing of capital expenditure
(resulting in a very low share of profit to the government). At no stage did
audit suggest that governmental procurement norms should apply to a private
contractor.
Whether the government is inclined to alter the IM principle embodied
in the PSC is not known. One would consider it a natural corollary to alter the
formula if agencies such as the CAG, the Ashok Chawla committee and later
the prime minister’s economic advisory council recommended it. The
compulsions of the government to not do so remain unclear.
In one of my routine courtesy calls on the prime minister, Manmohan
Singh, I mentioned to him that certain structural correctives needed to be put
in place. Whilst he did acknowledge that from time to time we need to
improve our systems and, based on the experience gained, protect the interest
of the government, he felt that audit should not act as a dampener on the
enthusiasm of the private sector to partner with the government. The prime
minister was very emphatic that Reliance was one of our largest, most
respected and best-known companies possessing a global reach. Reliance,
therefore, had the professional and financial capability to undertake such
large projects and compete in global bids. I agreed with him and pointed out
that auditors general in all democracies audit such government and private
partnerships and do not comment adversely on any private party making only
normal profits. However, it was the government that had taken the step to
invite the CAG to conduct audit, ostensibly with the objective of assuring the
public and the Parliament that its interests were being adequately protected.
India has been experimenting with joint ventures with private companies
for quite a few years now. Probably, the first major one was the Dabhol
Power Project with Enron, which as per Fortune was the most innovative
company in the world in those days.112 Maybe out of inexperience, but the
government did come a cropper in that venture. All financial institutions had
to take a haircut and the project tied itself into a terrible mess.
We thus need to learn from past experiences. There is no gainsaying the
fact that the country must encourage its enterprises and entrepreneurs. Indeed,
we need to develop the capability to compete globally in every sphere. Hence
we need to bolster those who have the expertise. There is a laid-down path
for undertaking a commercial venture. No one expects the activity to be done
for the love of the nation or for the avowed noble intention of providing a
resource for the production of invaluable finished products. The activity is
undertaken to generate profit, albeit a normal profit. Thus decision makers on
both the sides of the PPP contracts need to look inwards and ask—if decision
making and intentions had been transparent, wouldn’t the entire affair have
been earning the appreciation of the nation, with the operators being hailed as
nation-builders?
Possibly arising from such experience, Dr C. Rangarajan, heading the
then prime minister’s economic advisory committee, had been assigned to
suggest improvements to the PSC. Dr Rangarajan did do so. His
recommendation was that since cost recovery and ‘gold plating’ were at the
root of the public and Parliament’s concerns, dispensing with the
arrangement and going in for sharing overall revenues of the contract,
without setting off costs, would be ideal. This report was submitted in March
2013. It is understood that the government has set up yet another committee
—to what avail is not known.
Three entities have pointed in the same direction. It is clear that if
government interest protection is indeed a criterion, corrections will have to
be made. Not doing so will require the government to explain its compulsions
for not changing a formula which adversely impacts its own revenues.
I need to say in conclusion that my labouring over certain issues and
relying heavily on the audit report of the CAG is merely to treat this contract
as a case study and improve on the government’s technical expertise to draw
up concession agreements which at least are fair to the nation’s financial
interests.

—————————
99See ‘Discussion Regarding Situation Arising Out of Widespread Corruption in the Country’, Lok
Sabha Debates, in <http://164.100.47.132/LssNew/psearch/Result15.aspx?dbsl=5240>, accessed on 13
May 2014.
100See ‘Performance Audit of Hydrocarbon PSCs’, CAG, in
<http://saiindia.gov.in/english/home/Our_Products/Audit_report/Government_Wise/union_audit/recent_reports/union_p
sum.pdf>, accessed on 14 May 2014.
101‘Performance Audit of Hydrocarbon Sharing Contracts’, Report of the Comptroller and Auditor
General of India, No. 19, 2011-2012, p.77.
102See ‘Discussion Regarding Situation Arising Out of Widespread Corruption in the Country’, Lok
Sabha Debates, in <http://164.100.47.132/LssNew/psearch/Result15.aspx?dbsl=5240>, accessed on 13
May 2014.
103See A.M. Jigeesh, ‘PAC Grills Top Reliance Executives in KG Basin Case’, Mail Today, 4
February 2012, in <http://indiatoday.intoday.in/story/reliance-kg-basin-public-accounts-
committee/1/171999.html>, accessed on 15 May 2014.
104See ‘Performance Audit of Hydrocarbon PSCs’, CAG, in
<http://saiindia.gov.in/english/home/Our_Products/Audit_report/Government_Wise/union_audit/recent_reports/union_p
sum.pdf>, pp. 34-54, accessed on 14 May 2014.
105Ibid., pp. 56-61.
106See ‘RIL Counters CAG’s Critical Report’, Business Standard, 10 September 2011.
107Ibid., p. 60.
108See ‘Contracts like Reliance’s KG-D6 are Designed to Benefit Private Players: Chawla
Committee’, The Economic Times, 21 June 2011.
109Ibid.
110Ibid.
111‘Performance Audit of Hydrocarbon PSCs’, CAG, in
<http://saiindia.gov.in/english/home/Our_Products/Audit_report/Government_Wise/union_audit/recent_reports/union_p
accessed on 15 May 2014.
112See Carla Ellison, ‘Most Innovative Company in America’, Enron Online: The Enron Blog, 7 May
2013, in <http://enron-online.com/2013/05/07/most-innovative-company-in-america/>, accessed on 15
May 2014.
 10

OFF COURSE: CIVIL AVIATION

These Boeings (B777) were meant to fly for the next 25 years, then civil aviation minister had
told the government in August 2004, when the deal for ordering 111 Boeings and Airbus for the
national carrier was finalized.
—Mail Today, 19 April 2014
Air India to sell three remaining Boeing B777 planes (after having sold 5, four months earlier).
—Mail Today, 30 April 2014

f the above statements are true, why did we make the purchases and,
within five years of the delivery of the aircraft, sell them at roughly 427
crore each to Etihad Airways after having purchased them in 2005 for 1,300
crore per aircraft? How did our assessment go so horribly wrong? Have we
held those responsible accountable? Indeed, will we ever be able to do so?
When will we learn from our mistakes?
Before we explore this further, let us put the issue in perspective. Civil
aviation in India can be traced back to J.R.D. Tata flying a single engine de-
Havilland Puss Moth aircraft. The aircraft carried mail from Karachi’s Drigh
Road aerodrome to Bombay’s Juhu airstrip via Ahmedabad on 15 October
1932. The company set up by J.R.D.—Tata Airmail—earned a profit of
60,000 in its first year of operation, and 6,00,000 by 1937. In 1938 it was
rechristened as Tata Airlines. Modern-day Air India was born when the
government of India nationalized Tata Airlines on 25 August 1953. Air India
has since been India’s national airline.
During the 1990s, the government, through its ‘open skies policy’
allowed private airlines to operate in the country. The resultant competition—
in the form of fare wars, promotional fares and discounts for seasons and
sectors—brought air passage within the reach of the common man. It also
scripted some business failures, as competition is wont to do. Bottom lines of
even the most efficient airline companies were hit, and, not surprisingly, the
subsequent history of civil aviation in India came to be chequered—quite a
few private airlines were set up but not all survived.
It was in this competitive environment that Air India found itself
struggling to remain afloat. The million dollar question is: was it ever
permitted the freedom by its owners to commercially charter a course of
survival to face rising competition? Or had the union government become a
dead weight?
Concern had been expressed in the media, within Parliament and the
government about the functioning of Air India—its commercial viability and
company decision making. The merger of the erstwhile Indian Airlines and
Air India had taken place and the merged entity, the National Aviation
Company of India Limited (NACIL), was facing severe financial problems.
Salaries of employees were being disbursed five to six months late.
Understandably, the employees were getting restive. Aviation turbine fuel
supply companies were threatening to stop further supply. The airline had to
repeatedly approach the government for funds to keep itself afloat.
It was under these circumstances that the CAG decided to conduct a
detailed performance audit from 2004-2005 of the ministry of civil aviation
—and, by extension, of the public sector Air India, which was under its
administrative control—to ascertain the impact that the liberalized open skies
policy of the government had on the functioning and finances of the
company. The purview of the audit was:

Air India’s aircraft acquisition process;

the merger of the erstwhile Indian Airlines (which was the domestic
carrier) with Air India (which was the international arm) to constitute
NACIL, with the airline subsequently being called Air India Limited;
 and
the role of the ministry of civil aviation in managing the civil aviation
sector and awarding bilateral and other flying rights to international
carriers which were seeking a larger share of the country’s burgeoning
flying population.

To analyse the decision making processes in the government or its public

sector enterprises, I will first run through the role of the airline and the
government in the acquisition process, and highlight the discretion exercised
by different entities in negotiating bilateral flying rights. This is essential to
draw lessons for the future, so those who do not necessarily have the interests
of the company or the country at heart do not get away with errors of
omission and commission.
Air India had the distinction of being the first Asian airline to induct a
jet aircraft with the Boeing 707 in 1960. In fact, in 1962, it became the
world’s all jet airline. Its first jumbo aircraft, the Boeing 747, was inducted in
1971 and the Airbus A310 in 1986. In 1993, it inducted its flagship aircraft—
the Boeing 747, named Konark—which operated the first non-stop flight
between New Delhi and New York. The last acquisition by the airline was in
1996, when two more Boeing 747s were purchased. By this time, however,
the entire fleet was ageing.
To ensure a smooth and well phased-out process for new acquisition,
Air India set up an expert committee for a five-year fleet requirement plan in
January 2002. This committee did the required due diligence, undertaking the
necessary deliberations and, in July 2003, submitted a proposal for procuring
thirty-five aircraft—twenty-eight firm orders (eighteen Boeing 737-800
aircraft and ten Airbus A340 aircraft) and seven on an optional basis. The Air
India board of directors deliberated on the proposal and approved the
purchase of twenty-eight aircraft on a firm basis. The proposal was then
submitted to the ministry of civil aviation for approval in January 2004.
While Air India was pondering over the acquisition plan, the PMO got a
letter, signed by forty-three members of the US Congress,113 highlighting the
advisability of purchasing the Boeing aircraft as against the Airbus aircraft.
The letter appeared to indicate that the Airbus A340 aircraft was being
phased out and that there was a risk of spare parts and maintenance support
not being easily available. Boeing, the letter stated, was separately writing to
highlight that the economics of acquisition was dependent on the number of
aircraft being purchased—a fact we assume the technical committee would
have factored in.
The issues raised in the letter were examined by Air India who felt that
all the aspects highlighted had been considered before making the choice.
This fact was then satisfactorily explained by the Air India board and the
ministry of civil aviation to the PMO. The ministry reiterated that a fair
opportunity had been given to both vendors.
This explanation notwithstanding, it seemed that the government’s
position was shifting. A rethink slowly set in, with some alluding that it was
the government rather than the Air India board driving it—the latter
proposition would have been commercially savvier, one would assume. The
possibility of a rethink can be borne out by the events subsequently narrated.
I certainly do not want to argue that the ministry should not be guiding Air
India, but the fact remains that corporate entities, whether in the public sector
or private, are professional bodies and they are expected to plan strategically
on the basis of the commercial intelligence available to them. Promptings
from the government to the public sector need to be minimized especially in
view of two constant refrains—one, that there is already too much
governmental interference, and, two, that the public sector must exercise its
own professional skills.
The aircraft acquisition process, after being recommended by the board,
triggered a flurry of activity. Besides the US Congress and Boeing expressing
their respective opinions, the ministry recorded that ‘important
developments’ were being discussed by the secretary, ministry of civil
aviation and the PMO.114 There was no elaboration of these ‘important
developments’. Then, the minister, ministry of civil aviation, had meetings
with Air India in Mumbai and impressed upon them the need ‘to examine the
feasibility of direct India-US/Canada flights’.115 Perfectly reasonable, but it
defies logic that Air India, with a huge senior staff component and with fifty-
three foreign stations, had not in their strategic growth plans come up with
the idea of a non-stop flight between India and the US.
However, the fact that non-stop flights were to be factored in changed
the entire profile of the Air India purchase; it also meant that the Boeing
777ER, which was the only aircraft at that point which could fly non-stop on
this fourteen-hour transatlantic journey, had to be considered seriously.
I need to explain why there was a paradigm shift at this point. On 2
August 2004, the civil aviation minister had a meeting with the secretary,
civil aviation, and the CMD of Air India.116 At this meeting it was decided
that on the basis of the revised requirements, Air India would revisit the
proposal for the purchase of aircraft and submit a fresh project proposal to the
government at the earliest. At this meeting, the CMD of Air India stated that
although the existing proposal for acquisition did not fully cater to the
airline’s fleet, the additional requirement could be projected separately, after
due evaluation, through a supplementary proposal. This view
notwithstanding, the minister and the secretary stated that it may not be
advisable or prudent to go through the pre-PIB117 and PIB exercise in two
separate stages, with two different sets of proposals for such capital intensive
projects. The CMD was thus directed to take a total and comprehensive view
on the fleet of Air India, keeping in mind its plan and growth for the next
fifteen years or so.118 Since this meeting was the game changer, I am
attaching a copy of the minutes issued by the government to facilitate a better
understanding of the events which then unfolded [Appendix 12].
I am tempted to write about a very curious phenomenon that unfolded
concerning audit’s observation on the 2 August 2004 meeting. In the draft
audit report which had been sent by the CAG to the ministry for its
comments, audit had used an expression ‘in the meeting the minister nudged
[emphasis mine] Air India to revisit its proposal’.119 The moment this draft
audit comment was read in the ministry, all hell broke loose. Bureaucrats of
all hues—serving and retired—including Air India officials, started
approaching us to drop use of the word. The funny part was that just about
every person despatched to plead with us against usage of that word also
acknowledged that, that meeting, in fact, was the turning point. (Indeed, a
serving executive director perceived the so-called ‘nudge’ to be an order!120)
Yet, they had been commissioned to make the plea for removal. How did one
word cause such discomfiture?
The pressure was immense. What could one do? We deliberated.
Ultimately, we did drop that word from the final report, but not because of
any external coercion. And here I highlight the robustness of the auditing
process, in that every word/sentence in the report must necessarily be backed
by a key document (KD). The word ‘nudge’ was not in the KD and was
merely our interpretation—which could be faulted. Hence, it was decided to
drop the word.
After the 2 August 2004 meeting, the CMD was then left with no other
option but to take the proposal back to his board, which met on 13 September
2004. The very same board which had recommended only twenty-eight
aircraft earlier now revised its stance. Some members opined that in light of
the advice of the ministry, the fleet acquisition programme needed to be
revisited in its entirety. The board, however, not totally clear about the
ministry’s advice, sought a clarification from it, and received the following
response:
Strictly speaking it is for the AI board to take a view in the matter.
As far as Ministry’s advice is concerned, there is a suggestion that
AI needs to take a total comprehensive view on its fleet, keeping in
mind its plans and growth for the next fifteen years or so.121
This clarification further reiterated the earlier direction that Air India ramp up
its fleet acquisition proposal ‘keeping in mind its plans and growth for the
next fifteen years or so’. What is significant is that it was entirely silent on
how such a massive acquisition exercise would be funded. I emphasize this as
we see Air India being encouraged to purchase a huge number of aircraft,
regardless of the financial implications of this purchase and the financial
crisis it would create for the carrier. The board of Air India finally met on 24
November 2004 and approved a revised long term fleet plan for fifty aircraft.
In addition to this was a proposal to buy eighteen aircraft for Air India’s low-
cost subsidiary, the Air India Express. This was the huge commitment that
Air India was getting itself into.
For a better understanding of the issue, I need to dwell on the conduct of
board meetings. Sunil Arora, an outstanding officer of the Rajasthan cadre,
was then the managing director of the erstwhile Indian Airlines. He found the
atmosphere of government interference somewhat stifling. What does a
bureaucrat do when placed in such a situation? The textbook solution is what
he adopted, and kudos to him. On 28 May 2005, he wrote a detailed letter to
B.K. Chaturvedi, then the cabinet secretary, drawing attention to how certain
critical decisions were being taken at Indian Airlines based on the directions
of the minister, civil aviation. Since this letter is now in the public domain,
one can highlight the issues that it sought to address.122 The significant
practice emerging out of this letter is that ahead of the board meetings,
officials received telephonic instructions from the minister or his
representative on what decision to take. What did Sunil Arora write in the
letter? I reproduce a sample, in the context of the change that the ministry
was advising in the fleet acquisition purchase programme:
It is strange that between January 2004 and August 2004 when the
market parameters governing Air India’s operations did not really
change, Air India was being directed by the Ministry of Civil
Aviation to completely reconsider its fleet plan.
and
In the case of the AI board meeting of 26th April, 2005, I had
received a phone call from the Secretary, Civil Aviation on the 25th
of April, 2005 advising me to attend the Board meeting and support
the fleet plan proposal to be put up by the Air India management.
And how did the board meeting go? Arora records the following in his letter:
The Board members had not been circulated the Techno Economic
Feasibility report prepared by the Techno Economic cum
Negotiating Committee, either prior to or during the above board
meeting. Only a presentation was given outlining the
recommendations of the same Committee. The Financial
Evaluation Report was sent only on the 29th of April, 2005, i.e.
three days after the Board meeting.
Arora goes on to record:
As per the original request for proposal, bids were invited for
aircraft deliveries as per specific year wise induction plan.
Surprisingly an aircraft type (Boeing 787) which did not meet the
required delivery schedule with delay in delivery carrying up over
to 2011 was selected whereas the competing aircraft in this
category met the requirements. The interim capacity arrangements
by way of dry lease would be in the region of millions of dollars
which had not been factored in the evaluation [emphasis his].
Arora then states in his letter that on receiving the board minutes he had
found a discrepancy between the PowerPoint presentation which had been
made to the board and the record of discussions. In that context, he mentions
in his letter to the cabinet secretary:
I subsequently compared the copy of the power point [sic]
 presentation made on the 26th of April, 2005 to the board, with the
minutes of the board meeting of the 24th of November, 2004. It
clearly showed changes in the aircraft specifications related to
seating capacity for all the three different types of aircraft being
considered. This was despite the assurances given by the Director
of Planning, Air India in the course of the presentation to the Board
on 26th of April, 2005, that there were no changes to the earlier
approved specifications. Changing the seating specifications affects
the basic economics of evaluation and may have a bearing on the
selection of aircraft itself [emphasis his].
Arora goes on to add that:
[…] during the last one year almost all the Board meetings of Air
India, and even some meetings of airports authority have become a
farce. Instructions on key agenda items are communicated
beforehand on telephone or personally by Minister Civil Aviation
or by his OSD Shri K.N. Choubey. No suggestions to the effect,
that the issue in question requires a more detailed examination or
that there are some implications, are countenanced. The key word
is ‘immediate and unquestioned compliance’.123
Arora then writes:
I reproduce some glaring instances of such compliance below:
Air India discussed their dry leasing plans in the 99th board
meeting held in Mumbai on 17-7-04. Prior to this meeting, Minister
spoke to me and told me that since he and Secretary Civil Aviation
were satisfied about the correctness of the plans, it is expected that
we should immediately endorse it during the Board Meeting. When
I tried to tell him on the telephone that the Agenda item raises some
issues, I was curtly asked to endorse the proposal and a counter
question was posed on the telephone that when the Minister and the
Secretary himself are satisfied, what more is there for us to see.124
There is one more example I would like to emphasize to draw attention to the
fact that the boards of public sector enterprises are treated as subordinate
offices of the ministry, and ministers treat such enterprises as their personal
fiefdom, brooking no discussion or disagreement. Arora goes on to say:
 During the 101st meeting of the Air India [Board] held in Mumbai
on 13.9.04, […the] agenda item seeking approval of 400 crore for
the refurbishment of 6 Boeing 747-400 aircraft, which are already
8-11 years old, and 8 Airbus A310 aircraft, which are already 14-18
years old [was submitted]. There was no budgetary approval for
this item. No cost benefit proposal for the item was put up. The
agenda item itself blatantly mentions that this exercise is being
undertaken at the behest of the Minister, Civil Aviation [emphasis
mine]. Prior to the Board Meeting, there was a call by the Minister
and the message was that the item in question has to be approved
immediately.
I do not at this juncture know what action was taken on this letter. However,
such a letter could neither be ignored nor the issues dismissed, for the simple
reason that it is not easy for a serving officer to put down in writing his
apprehensions about his own minister. There are risks to one’s career. Rather
than attributing a cause and effect relationship, I state facts. Sunil Arora
reverted from central deputation to the state in June 2005. Ordinarily, he
would have been eligible for his next stint to the centre after a mandatory
‘cooling off’ period of three years. However, that was not the case. In 2012,
orders were issued posting him to the innocuous office of ‘development
commissioner, handlooms’. One assumes that these orders were issued after
the prime minister’s approval, as is the protocol. However, no sooner had the
orders been made public, than they were hastily withdrawn. Arora continues
to serve in his state cadre despite his colleagues having been appointed as
secretaries in the government of India.
I refer to the letter written by Sunil Arora and the issues contained
therein only to emphasize the fact that after Air India did the ministry’s
bidding, everything progressed at record speed. Thus, whereas the decision
making process to propose the purchase of twenty-eight aircraft by the Air
India board had taken two years, from January 2002 to January 2004, the
revised proposal for fifty (plus eighteen) aircraft was submitted within four
months of the 2 August meeting. It is curious that even as Arora stated that
the market parameters governing Air India’s operations had not undergone a
change, the board was now taking a different view, and painting a rather
optimistic, and somewhat unsubstantiated, growth trajectory for Air India.
Air India was now presuming that its frequency for long range aircraft
would increase from the originally presumed forty-five per week to 303 per
week. What formed the basis of this sudden optimism remains unexplained.
The available seat kilometres125 which were earlier presumed to be 10,780
were now hiked to 62,667. Given the exponential confidence in Air India’s
projected performance, the cost of purchase of these aircraft was being
increased to US$6,149 million from the previous modest projection of
US$1,104 million.
In the government, proposals involving such a large outlay go through
various stages of examination. Each stage is independent and is expected to
advise one on the viability or profitability of undertaking the proposed
programme. The Air India proposal also went through such an examination.
The planning commission observed that the assumptions regarding traffic
projections were risky and the upgradation was ambitious. It felt that the
airline’s projected increase in its market share—from 19 per cent to 30 per
cent—was not backed by any strategy. It was also not clear how government
policy would support such ambitious projections.
The department of expenditure in the ministry of finance observed that
the argument of enhancement of capacity necessarily leading to higher
market share was not an assumption which had been substantiated. They
stated that a purely supply side response would run into huge demand side
risks. There could be no more telling an observation than this—that too from
the ministry of finance. Clearly, the entire proposal was supply driven.
However, the ministry of civil aviation stuck to their viewpoint that market
share could be increased by increasing capacity—a curious assumption, given
that their share had remained static between 1999 and 2004, oscillating
between 19.5 per cent and 19.4 per cent.
It is an indication of the persuasive powers of the ministry of civil
aviation that, citing a shortage of time, the public investment board gave
clearance to the proposal for the purchase of the aircraft at a cost of about
38,000 crore. Then started the negotiation process with the vendors through a
price negotiating committee. First Air India negotiated. Then the ministry
separately constituted an overseeing committee with a former CAG as its
chair—a rather unusual process, if one may say so. There was then an eGoM
to participate in a final round of negotiations with the manufacturers. This
final round was held on 24 December 2005.
Incidentally, when the various interventions by the price negotiation
committee and the overseeing committee were concluded, the civil aviation
minister held a meeting, on 12 November 2005,126 on the seat configuration
of the B777 aircraft which were to be purchased. Ordinarily, once the
negotiations commence, the aircraft specifications stand frozen. However, in
this instance, the specifications were revisited—at whose initiative, it is not
clear. These are technical and commercial issues which should be addressed
by the board or the management. It is curious, then, how this role came to be
taken on by bureaucrats and the ministers rather than the professionals in the
public sector enterprise.
At any rate, the decision taken was that in the context of the fiercely
competitive aviation scenario, Air India Limited would provide ‘the best
possible product in terms of seat comfort, in-flight entertainment systems and
other amenities on the new aircraft’.127 In pursuance of this decision the seat
capacity of the long range and extended range aircraft were reduced by
twenty-eight seats and thirty-eight seats respectively. This decision was
communicated to the vendor without the sign-off from the Air India board—
in fact, they didn’t even know of it. This crucial decision, which effectively
changed the entire cost configuration of the aircraft was intimated to the Air
India board much after it was communicated to the vendors. Airline officers
and professionals whisper that this has been the single decision which has
added to the unviability of this long range non-stop flight—with the fuel
guzzling B777 aircraft providing more first class seats which go unoccupied
(or are used to upgrade ministers and bureaucrats) while reducing economy
seats, which are popular.
The eGoM, after negotiations with the vendors, conveyed its
recommendations to the prime minister on 24 December 2005. On 30
December, the PMO conveyed its acceptance of the purchase of sixty-eight
aircraft to the ministry of civil aviation, which then passed it on to Air India
on the same day. Air India signed the agreement with Boeing on that very
day.

This case seems to illustrate that decisions impacting the commercial viability
of the public sector airline were ministry driven; that there was seemingly
scant regard for the cost-benefit criterion; that the board was kept in the dark
at crucial junctures; and that there was a lack of accountability in the entire
decision making process. Within one year of the long range aircraft being
delivered, they were termed fuel guzzlers, and later sold to Etihad airways in
2014. Newspapers report that the nature of the sale was ‘five aircraft at the
price of one’, paid by Air India.
If the government actually did want Air India to make these purchases in
public interest, the funding should have come from the budget. No
commercial proposal could be commercially viable if the entire fleet
acquisition worth nearly 40,000 crore was financed by debt alone. In this
particular case, the equity infusion was a miniscule 325 crore.
The much talked about non-stop flights to New York/Newark/Chicago
sectors all arrived in the USA in the morning and left late in the evening. This
inadequate utilization of the aircraft by keeping it on the ground for twelve
hours evokes shock and surprise by industry professionals. But as mentioned
by the then executive director, ‘none could demur as the decision was taken
at the highest level’.128 Bhargava goes on to analyse that once all aircraft
were delivered, 3,500 crore would be required per annum for debt servicing.
This implied that Air India would have to generate revenue of 75,000-
80,000 crore per annum, which is not the combined turnover of all Indian
carriers put together! Add to this the fact that the ministry continued with
liberal bilateral rights policy. Yet, Air India’s market share was expected to
go up to 30 per cent from the 19.5 per cent it had been hovering at. Who did
the arithmetic? Will the country ever get to know? Or will the exchequer
continue to bleed for the folly of a few?
The audit report brought the entire issue into the public domain. The
PAC discussed it. What did the PAC recommend? No one knows. Besides
making media headlines for a day or two, nothing came out of the disclosure.

Let us now explore the other issue that I had referred to, namely, the role of
the different authorities in negotiating flying rights on a bilateral basis. What
are bilateral flying rights? To facilitate international flights of different
airlines, the respective governments have to negotiate a treaty-level
agreement to regulate them. These treaties are termed bilateral air service
agreements. The treaties cover the traffic rights, namely, the cities covered,
the number of passengers that can be carried and, at times, the tariff that can
be charged.
In 1944, around the time that the Second World War was ending, fifty-
four countries came together in Chicago to discuss how to regulate
international travel. This resulted in the signing of the Convention on
International Civil Aviation, commonly known as the Chicago Convention. It
established the rules within which international aviation functions and gave
shape to the International Civil Aviation Organization (ICAO) to administer
this. The ICAO has, over time, developed various traffic rights under which
the airlines can operate. These rights are called ‘freedoms of the air’, that are
negotiated by governments for mutual benefit and for the convenience of the
travelling public. The ‘freedoms of the air’ are listed against designations of
value (for instance, first, second, third, and so on), and are of different types,
such as flying across a country without landing there; landing internationally
for technical reasons such as refuelling or maintenance; or landing
internationally to carry passengers from and to different destinations.
India has a very significant interest in these freedoms not only from the
viewpoint of its own airlines but also because a large number of Indian-origin
passengers are seeking to travel abroad, especially to the Gulf countries, and
there are limitations on seat availability on those routes. Keeping this in
mind, the Indian government subscribed to an open skies policy, which
would ease the difficulties of its passengers and also expand the operation of
its own airlines. In 2003-2004, bilateral agreements to facilitate this were
liberalized. However, while allowing for open skies, the council of ministers
struck a note of caution in September 2004 by urging the ministry of civil
aviation to bring proposals for building up the capacity of the country’s
public and private airlines, providing air travel facilities on international
routes, and ensuring the optimal utilization of these. The ministry of civil
aviation did so and apprised the cabinet in December 2004 that reciprocity
was the underlying principle while choosing these flights. That said, Indian
carriers were, at that point, utilizing only about 30 per cent of the capacity
negotiated for them while foreign carriers were utilizing 65 per cent. Also,
although these agreements had been signed with fifty-one countries, Indian
carriers could fly only to twenty-five of these, thereby leading to a
disproportionate utilization heavily weighted against us. At that time, only
Air Sahara and Jet Airways were flying abroad, besides Air India.
Against this background, it was decided to support Air India’s fleet
acquisition programme with adequate infusion of equity and government
guaranteed borrowing. It was also decided that traffic rights for Air India
would be reserved to complement the acquisition plan over the following two
years. The existing compensation which was being received by Air India
through the government-mandated commercial agreements was also to be
continued for five years.
It is undoubtedly true that the liberalized policy towards foreign carriers
in the bilateral agreements benefitted the Indian traveller, but what it did to
Indian carriers is an entirely different story. The sequence of events which
took place between mid-2007 and mid-2010—a period of three years—
wreaked havoc on Indian carriers, both public and private.
During 2003-2004, Emirates, the carrier of Dubai, was landing at six
cities in India and had a capacity entitlement of 10,400 seats per week. Very
soon, in 2008-2009, their cities of call increased to fourteen and the capacity
was hiked to 54,200 seats per week. All this while our carriers, despite their
best efforts, could not obtain permission to land at Dubai’s Jebel Ali airport
besides the Dubai International Airport.
In May 2007, Emirates obtained a capacity increase from 18,400 seats
per week to 21,950. In summer 2008, this was enhanced to 28,200 seats and
in winter of the same year, it rose to 29,100 seats. Emirates was also
permitted to upgrade the capacity of the aircraft they were utilizing from
Mumbai, ostensibly to ease congestion at the airport. In December 2007,
Emirates sought to replace their 237-seater Airbus aircraft with the 380-seater
Boeing 777 aircraft. The examination of this request by the ministry of civil
aviation evinced a very interesting comment. The observation was that there
was no justification for this request. But in the same breath, the ministry said
that due to the open skies policy, and to help the travelling public, the request
could be considered. This is typical bureaucratic behaviour—a door is shut
for protection, but then a window is opened. The minister discussed this issue
with the joint secretary, and ostensibly in the interests of the travelling public,
they decided to grant Emirates’ request, although there was seemingly no
justification for it.
Soon enough, in January 2008, Emirates’ long pending demand to have
a port of call at Kozhikode (Calicut) was unearthed from files in the ministry.
This was also approved, close on the heels of the earlier sanction, in
December 2007, to upgrade their equipment. Within two months, probably
emboldened by the ease with which their requests met with success, the
Dubai civil aviation authority (CAA) wrote to engage in bilateral talks for
reviewing and enhancing the existing entitlements. (The earlier enhanced
entitlements had come about merely on a file examination of their requests.)
The Indian director general of civil aviation (DGCA) felt this was a
justifiable request as they were utilizing their entitlements to the tune of about
80 per cent. Air India protested, pointing out that Emirates had got a 60 per
cent increase only a while ago. Air India also pointed out that their seat
utilization was about 87 per cent, as against the (approximately) 75 per cent
of the Indian carriers. Moreover, Air India hoped to substantially enhance its
own capacity, and increasing the entitlement would only facilitate further
sixth freedom traffic for Emirates.129
These comments of Air India carried no weight and the bilateral
negotiations were held in New Delhi. During the negotiations it was decided
to increase capacity through the exchange of letters, and the Dubai CAA also
agreed to a ‘change of gauge’ for Indian carriers, which meant that Indian
airlines could alter the size or frequency of their aircraft to meet traffic
requirements. As soon as the Dubai delegation returned after the meeting in
New Delhi, they wrote back saying that while they had, in principle, agreed
to a change of gauge, they would have to revisit the Indian proposal at a later
date due to ‘infrastructure constraints at the Dubai airport’. This obviously
was an excuse to deny Indian carriers their due, which was immediately
pointed out by Air India.
In March 2009, the Dubai CAA reiterated its inability to accede to a
change of gauge for Indian carriers and offered to revisit the matter in 2012.
However, the Dubai CAA’s confidence and, indeed, audaciousness—
possibly fuelled by the nature of the negotiations—permitted it to seek three
additional points of call—Amritsar, Mangalore and Tiruchirappalli—in the
summer of 2009. Meanwhile, on seeing Emirates’ media reports announcing
operations from Pune, Jaipur, Goa, Chandigarh and Amritsar, Air India
separately pointed out to the ministry of civil aviation that they had still not
been allowed another port of call in Dubai, whereas Emirates was flying from
ten cities in India. The CMD of Air India protested saying that while
Emirates had been permitted to make Dubai a hub for sixth freedom traffic, it
was to the detriment of Indian airports such as Mumbai and Delhi, which had
been upgraded. This led to a rather strange note on the ministry’s files. The
joint secretary recorded: ‘[…] because of Dubai’s present precarious financial
situation, the entire project at Jebel Ali is reportedly held up.’130
How odd that the Indian government was concerned about the
precarious financial position of Dubai and not about its own carriers and
airport hubs. The joint secretary managed to persuade the CMD of Air India
to accept the allocation of Chandigarh and Lucknow to Emirates ostensibly
on grounds that this would not contribute to sixth freedom traffic. The
consolation handed to Air India was that India would project permission for
Jebel Ali in 2012. The score thus far: Dubai two more; India none.
In April 2009, Dubai reiterated their request for six additional points of
call. Now they condescended to consider India’s request for Jebel Ali in
2012. They got approvals for Coimbatore and Goa and an additional
allocation of 1,300 seats to Kolkata at the minister’s instance. (The secretary
was opposed to advancing the enhancement.) Jebel Ali for Air India
continued to be a mirage in the Dubai desert.
Air India protested again in September 2009, pointing out that it had not
got a second point of call in Dubai, while Emirates was getting to fly deeper
into India. This complaint, again, carried no weight. The PMO sought
clarifications, probably because Emirates had approached them this time. The
result was that the minister approved Emirates operating from Lucknow also.
The toll was fourteen ports for Emirates, and nothing additional for Air India,
despite the fact that the latter was being nudged to buy more and more
aircraft, thus pushing it deeper into debt.
A detailed analysis by the CAG revealed that 59 per cent of the 2.30
million inward passengers and the 3.90 million outward passengers that
Emirates carried in 2009-2010 were sixth freedom passengers. Nothing could
demonstrate this better than an analysis made by the Business Standard, the
title of which read: ‘Sixth Freedom Choked Air India’.131 This summed up
India’s airline story.

What does one make out of all this? What lessons can we draw? We know
the facts. The facilities offered to the travelling public are no doubt of
paramount significance; the advent of the open skies policy and low-cost
carriers has helped them tremendously. The government has created world
class airports in Delhi, Mumbai and Chennai. These need a minimum critical
level of passengers to ensure commercial viability, or else the passengers will
have to pay higher charges.
However, in permitting foreign airlines to pick up passengers from
interior cities in the country and fly them abroad, we are denying domestic
airlines and airports the right to grow. Equally, by pushing a public sector
airline to expand by asking for more aircraft, more routes, the government is
ringing the death knell for the country’s national carrier. A better option
would be to have indigenous airlines carry passengers from interior cities to
the hubs; from here, even foreign carriers can operate. This would provide
much needed passengers for our carriers and expand operations in our newly
constructed terminal hubs in Mumbai and Delhi.

This remarkable epic has been scripted and choreographed by those very
persons who had taken the oath of upholding and protecting the interests of
the nation and its treasury. The issues that have been raised in this case study
are not about finding fault with the decisions taken, especially since we now
have the benefit of hindsight. The issue is one of accountability in our whole
decision making process. The alarm signal that I seek to raise is that despite
the government putting in place seemingly robust procedures and system
checks, these safeguards can be subverted by those in the right places. All the
agencies designed to raise the right voices did make feeble attempts to raise
them, but no one dug in its heels to say that the steps being taken would spell
doom for the airline or the sector. One must ask why.
The strength of the bureaucracy lies in their pointing out the pitfalls and
then leaving it to the political executive to take the decision—a conscious
decision—after weighing the pros and cons, and obviously taking the onus
for the decision. This is because in a parliamentary democracy the elected
representative is supreme. While acknowledging this strength of our
Constitution, how do we hold the decision makers accountable for the
decisions taken under their stewardship? Does this country, and its
exchequer, have the infinite capacity to continue funding obviously
motivated decisions and carry on as if an error is another casualty of the
system? When do we become a nation with no further appetite to tolerate
such malfeasance, and say enough is enough? Will we ever be able to do so?

—————————
113See ‘Performance Audit Report on Civil Aviation in India,’ Report of the Comptroller and Auditor
General of India, No.18, 2011-2012, p. 9.
114Ibid.
115Ibid., p. 10.
116Minutes of the meeting are enclosed in Appendix 12.
117The public investment board (PIB) has been constituted in the finance ministry for detailed inter-
ministerial examination of investment proposals involving a plan outlay of a hundred crore rupees and
more.
118‘Performance Audit Report on Civil Aviation in India’, Report of the Comptroller and Auditor
General of India, No.18, 2011-2012, p. 10.
119Jitender Bhargava, The Descent of Air India (India: Bloomsbury, 2013). The author writes ‘Praful
Patel, while nudging (read ‘ordering’) Air India to revisit its fleet acquisition plan…’
120Ibid.
121See ‘Performance of Civil Aviation in India’, Ministry of Civil Aviation, 2013-2014, in
<http://164.100.47.134/lsscommittee/Public%20Accounts/15_Public_Accounts_93.pdf>, accessed on
25 June 2014.
122See, for instance, Mohua Chatterjee, ‘Former Indian Airlines Chief Sunil Arora Had Complained
about Praful Patel, Aide’, The Economic Times, 17 August 2012.
123See Mohua Chatterjee, ‘Praful Patel, Aide Sunk Air India, Former Indian Airlines Chief Says’, The
Times of India, 17 August 2012.
124Ibid.
125The available seat kilometres (ASKM) is a measure of an airline flight’s passenger carrying
capacity. It is equal to the number of seats available multiplied by the number of kilometres flown.
126‘Performance Audit Report on Civil Aviation in India’, Report of the Comptroller and Auditor
General of India,’ No.18, 2011-2012, p. 19.
127See, ‘Acquisition of Aircraft’, CAG, in
<http://saiindia.gov.in/english/home/Our_Products/Audit_report/Government_Wise/union_audit/recent_reports/union_p
accessed on 26 June 2014.
128Jitender Bhargava, The Descent of Air India (India: Bloomsbury, 2013).
129While negotiating bilateral rights, a freedom which gained significance in the Indian scenario is the
sixth one. This is the right to fly and ferry passengers from one foreign country to another, by hopping
through one’s own country. For example, KLM, the Dutch airline, ferries passengers bound to New
York from Delhi by stopping at Amsterdam en route. This freedom becomes very significant for
airlines of city states such as Dubai (Emirates airlines), Singapore (Singapore airlines) and Hong Kong
(Cathay Pacific).
130See ‘CAG Report on Civil Aviation Ministry’, in <http://issuu.com/htonline/docs/cagair>, accessed
on 26 June 2014.
131Surajeet Das Gupta and Mihir Mishra, ‘Sixth Freedom Choked Air India’, Business Standard, 12
September 2011.
COURSE CORRECTION
 11

EXCELLENCE, ACCOUNTABILITY & PROBITY

THE PURSUIT OF EXCELLENCE

In the London Olympics of 2012, India was hailed for its stellar performance;
it had never done so well before. The medal winners returned to a triumphant
and tumultuous reception. They were welcomed with flowers, taken in
processions in flower-bedecked vehicles and paraded before the highest in
the land. Their achievements were praised by all, and most deservedly so.
Chief ministers rushed to offer praise and gift land and money to the medal
winners. No doubt our athletes had done us proud.
What was our haul?
No gold medal.
Two silver medals.
Four bronze medals.
We routinely compare ourselves with China; we would like our
achievements to be in the same league as those of our neighbour. What was
China’s medal tally? Thirty-eight gold. Twenty-seven silver. Twenty-three
bronze—a total tally of eighty-eight, second only to the USA with one
hundred and four.
Since we so triumphantly celebrated our performance, we need to ask
ourselves a few questions—and in doing so, I am by no means discounting
the phenomenal performance of our athletes:

When the world goes for gold, why do we settle for bronze?
Are we only a nation of mediocre people?
Are we content celebrating mediocrity?
Has mediocrity become the nation’s soul?

The celebrations did not reflect on our athletes. They reflected on India,
which had produced six medal winners out of a population of 1.2 billion.
They reflected on the fact that we have forgotten to pursue excellence.
We have become a nation content with accepting a leader foisted upon
us not because of his proven leadership qualities or dynamism, but by virtue
of his loyalty to an organization or its high command. We are a nation that
has come to accept its topmost civil servant not because of his ability to
motivate, innovate or introduce initiative into what was possibly the best
bureaucracy in the world, but by virtue of his seniority, and the number of
years he has served the establishment. We are a nation that will accept a chief
minister not because the legislators of the majority party of that state see him
as a naturally elected leader, but because some remote central committee
would like to helicopter down their own lackey. We are a nation that will
nominate a scientist to our highest scientific organization not because of his
proven research findings, but because some decadent technician recruited in
the scientific cadre decided he had ‘arrived’. And finally, we are a nation that
has forgotten the skill of winning gold medals in international events because
we do not choose a team of the finest calibre, but would rather have one
affiliated with the nation’s power corridors.
This issue stares us in the face when in global conferences we are asked
why, despite having the fourth largest number of billionaires in the world, we
are home to the largest number of malnourished children. We are a country
about whom Christine Lagarde (the International Monetary Fund managing
director) said, at the Richard Dimbleby Lecture in London in February 2014,
‘The net worth of the billionaire community in India increased twelve-fold in
fifteen years—enough to eliminate poverty in the country twice over.’ This
reflects on how well we have been able to manage the country’s economic
growth and make it inclusive. It reflects on how good we are as
administrators, scientists and educationists. It reflects on us, as we seem to
have become a land of jugaad. We excel in cut-and-paste solutions. We make
promises and provide quick fixes to tide over the crisis at hand, thereby
abandoning long-term objectives.
We also seem to keep widening the threshold of our tolerance. We see
enormous wrong, abysmally high levels of corruption, but accept these as
necessary evils and refuse to raise a voice against them. We need to ask
ourselves not only why we choose to live with mediocrity, but also when we
plan to stand up and say, enough is enough. I daresay—and I am relieved to
see this in my lifetime—such change is on its way; we see welcome signs,
particularly from GenNext.
Indian democracy is in the throes of transformation, and there is only
one constant that will define and determine success: the pursuit of excellence.
Whether we are the political executive or the administrative bureaucracy or a
corporate enterprise; whether we are associated with the fields of science and
technology, or sports, or academia and the arts, we cannot afford to limit
ourselves to anything less than the best. Indeed, the quality of pursuing and
achieving excellence should be ingrained in all of us.
But is this, in fact, the case? No. And the major reason for this is that we
do not choose to follow best practices. There is no transparency in our
procedures, no integrity in our professional pursuits. The view that the end
justifies the means is becoming an increasingly convenient cover for the
behaviour of individuals, groups and governments. Added to this are the two
Hydra-headed monsters—bribery and extortion—which emerge out of
rampant corruption. The implications of such lapses are far-reaching. History
is witness to the fact that any dilution of morality has eventually led to
degeneration of societal values, pushing the country into a quagmire from
which it takes ages to emerge. In fact, any ethical lack leads to inefficient or
even bad governance. As a direct and immediate consequence, economic
growth bypasses the poor, and we fail to reap the full potential of
development.
I should add that the Indian economy has much to be proud of. It
recorded a consistent growth of around 8 per cent in the new millennium.
This lasted till about three years ago, till the onset of the global financial
meltdown. Even then, while the rest of the world reeled under a deep
economic crisis—with negative growth even in developed economies—our
growth rate simply shrank to about 6 per cent. This is not merely a cyclical
phenomenon but reflects structural changes in the Indian economy which can
be sustained over the long run.
We are a country that airlifted forty-seven tonnes of gold to the Bank of
England, and twenty tonnes to the Union Bank of Switzerland to raise
US$600 million in 1991, and today have reserves of about US$320 billion.
We are a country that managed to overcome the problems caused by the
Enron and Arthur Andersen imbroglios. We are a country that could insulate
our financial institutions from the crippling global financial meltdown. This
speaks highly of the inherent strength and robust fabric of the public and
private sectors of India, which continue to deliver resounding growth.
We are now a proud country that has debunked the tag of the ‘Hindu
rate of growth’—considered our hallmark for roughly forty years post-
Independence. We are a country that has been able to substantially transform
a huge population base into productive capital. We are a country that has
helped the global economies pioneer in the space of information technology,
and have ourselves become market leaders in that segment.
We are a nation with sporadic displays of innovation or excellence,
those that create an abiding partnership between the government and its
people. A case in point is Tiruchirappalli, where the introduction of
community policing was a paradigm-shifting effort which has not only
sustained over time but has also affirmed the faith of the people in the police
force. Another example is that of Surat, where a series of structural and
procedural innovations converted the plague-ridden city to the second
cleanest in the country. These examples serve to repudiate the myth of a lazy
bureaucracy, and establish the tenet that with ethical actions, transparent
procedures and good quality leadership, we can achieve distinction.
Clearly the potential for excellence exists. The challenge is to extend it
uniformly across institutional and societal structures. It is entirely convenient
to remain in a state of lethargic non-performance, seeking cover under
excuses—that the rules are complicated, that one fears investigation, or that
certain procedures are time-consuming. However, with forty years of
experience in the bureaucratic system behind me, I am of the firm opinion
that given a little imagination and initiative, changing dysfunctional systems
is within the realms of possibility. Excellence requires no major effort. It
merely has to become a habit. All this requires is will, an enabling mindset,
simple innovation of processes, and an insistence on timeliness. If we run a
commercial enterprise, we need to innovate to maximize profits, not seek rent
by beating the system. If we are part of a public organization, we need to
make probity our core value and impose moral authority, as there is no
escape button. The efficiency multiplier is public support. In seeking this
support, we do not demean our office; rather, we enhance its stature and
performance.
The country is poised at a critical juncture. We, the educated urban
middle class, owe it to our brethren to provide leadership in thought and
action so we reach the heights of perfection. We live in a society which has
awakened to realizing the strength of the hitherto silent majority. This silent
majority is calling the government to account. It desires participative
governance. Our leaders must recognize that the outcome of such
participation will be excellence. While we accept the greatness of our leaders,
building bridges with the public will only enhance the former’s greatness and
extend the tenure of their leadership. It is for them to improvise and thereby
create a national advantage—a success story. We need to move from small
time jugaad to high value and high impact innovation. The key element is to
permit merit to have free play in all our actions. Let the message go out that
merit alone will be the dominating factor in all decisions taken by the
government and that a thousand flowers will be allowed to bloom. We have
to get over the accusations of nepotism and cronyism that seem to have crept
into our psyche.
A basic premise of parliamentary democracy is that an elected and
accountable political executive, with the assistance of an elaborate
bureaucratic structure, will manage public affairs within the parameters set by
the Constitution and the law. However, the reality of complex politics in
every democracy is leading to convenient deviations. A dominant culture of
adjustment has become prevalent, with honesty and integrity being the
casualties. It is this rather imperfect world that we have to negotiate if we
must become men and women who matter; we have to be leaders in society—
the agents of change—who ensure that the pursuit of excellence becomes the
cornerstone of institutional and individual actions.

THE ROLE OF ACCOUNTABILITY

Accountability refers to the processes, norms and structures that hold the
population of public officials legally responsible for their actions and even
impose sanctions if they violate the norms. Such accountability is the
fundamental tenet of a modern and democratic society, and is essential for
ensuring systemic oversight by those acting on behalf of the government.
This is especially relevant since the bulk of the government’s revenue comes
from tax, compulsorily collected from citizens. The citizens need to know
that government funds have been handled in accordance with the rules and
regulations of the land, and that the government’s programmes are achieving
their objectives.
Accountability institutions are the core institutions of a successful and
performing democracy. The existence of strong and independent
accountability institutions ensures that the government performs its duties
faithfully and efficiently. These institutions detect and prevent poor
administration; halt waste and leakages in the system; alert and restrain the
abuse of power; deter illegal and unconstitutional conduct; and enforce
standards of responsible leadership. They ensure that deviations from
acceptable practices get corrected mid-course, and thus, assure the public that
all efforts are directed towards the achievement of national goals.
Successful governments create institutions of horizontal accountability
to provide vigilante and safeguard the efficient functioning of its various
arms. Such vigilante is exercised by specifically designed institutions such as
the election commission, the vigilance commission, the information
commission, and of course, the supreme audit institution, which in India is
referred to as the institution of the CAG. It is also performed by regulatory
bodies such as the capital market regulatory body, the electricity regulatory
body, or the pollution control body. These are created by the government, so
it can distance itself from the function of supervision, and entrust it to a
specialized body well-versed in the technicalities of a particular sector. While
some institutions of accountability derive their mandate directly from the
Constitution, some have statutory backing.
The idea of governance and accountability is as old as organized
government. In ancient times, the preservation of the resources of the king
was accorded topmost priority. As early as the third century BC, Kautilya in
his magnum opus Arthashashtra commented on human nature’s biggest
vulnerability, its tendency to acquire public money for private gain. He
wrote:
Just as it is impossible not to taste honey or poison that one may
find at the tip of one’s tongue, so it is impossible for one dealing
 with government funds not to taste, at least a little bit, of the king’s
wealth. […] Just as it is impossible to know when a fish moving in
water is drinking it, so it is impossible to find out when government
servants, in charge of undertakings, misappropriate money.132
Therefore, Kautilya went on to formulate a series of checks and balances in
the administrative system. He wrote that ‘in all cases [where] an official has
caused loss of revenue to the state […] his property shall be confiscated.’
In the Athenian state, the accountability of officials was the key to
responsible government, and unaccountability implied lawlessness. Aristotle
wrote:
Some officials handle large sums of money: it is therefore
necessary to have other officials to receive and examine the
accounts. These inspectors must administer no funds themselves.
Different cities call them examiners, auditors, scrutinees and public
advocates.133
In Athens, consequently, the officials were required to report their actions ten
times a year to the Assembly of the Citizens. If the explanations were found
inadequate, the officials were subjected to trial by a jury of their fellow
citizens.
In medieval England, we find that the concern for fiscal accountability
was paramount. As early as the thirteenth century, Parliament had sought to
scrutinize accounts. Later, in the fifteenth century, such attempts met with
objections from Henry IV; he said that ‘kings are not wont to render
accounts’. After the Glorious Revolution of 1688, the Commons felt that they
might claim a more extensive function, that of investigating the wisdom,
faithfulness and economy with which grants had been expended. This led to
the setting up of the commissioners of accounts. Later in 1780, the creation of
statutory commissions by Lord North was a significant step in the process of
establishing systems of accountability, as these commissions were
independent agencies, distinct from earlier political instruments.
Most modern day democratic constitutions are based on the philosophy
of a separation of powers. The legislative accountability of Parliament or
parliamentary oversight is exercised through hearings of parliamentary
committees. Judicial accountability is maintained by courts that adjudicate
cases, protect human rights and assess the constitutionality of government
decisions. Executive accountability is ensured through ombudsmen or human
rights commissions. While setting out the distinct roles of the legislature, the
executive and the judiciary, the framers of the Indian Constitution also set up
the necessary checks and balances needed for administrative objectivity and
accountability. Whilst the executive has been given the freedom to frame and
design schemes, projects and institutions to fulfil the requirement of growth,
it is essential to ensure that subjective elements do not enter the
implementation process. Hence, the need to have an independent agency—
audit—to ensure objectivity. In light of this, Parliament decided to create an
independent authority in the form of the comptroller and auditor general
under Article 148 of the Constitution.
While the CAG and the election commission have the necessary
independence guaranteed by the framers of the Constitution (who had the
foresight to visualize that unless distanced from the executive, the efficacy of
these institutions would be seriously compromised), it would be in public
interest if institutions such as the CVC and the central information
commission (CIC) were also distanced from the government and provided a
constitutional status. Similarly, it would help if an investigative agency such
as the CBI could be given a more autonomous status, while being supervised
by a committee comprising the prime minister, the chief justice of India, the
Lokpal, the Lok Sabha speaker and the leader of the opposition; such
measures would make it more than (as is often alleged) a mere ‘handmaiden’
of the government. Successive governments have hesitated to do this for
obvious reasons, but the time has come for a decisive step in this direction.
In exercising their functions, these oversight institutions should not be
subject to the direction and control of any other person or authority; it is
important to insulate them from inappropriate influences. Any attempt to
dilute or resist oversight and challenge the credibility of accountability
institutions will only be inimical to societal needs and concerns. In an age
where the average citizen is emphatically demanding good governance, it is
in the interest of Parliament to empower oversight institutions; grant them
autonomy, so they can exercise the power vested in them independently and
objectively; and allocate the resources and skills required to improve their
effectiveness.
We are at a critical juncture today. Typically, those with vested interests
attempt to subvert the rules of government accountability on the one hand
and free market competition on the other. These people become the most
insidious threats to a healthy democracy. In such a fast-changing scenario, it
is crucial for accountability institutions to reposition themselves to serve the
interests of the public.
Thus, the concept of vertical accountability becomes especially
significant to check abuses by public agencies and branches of the
government. Civil societies, NGOs, mass media and citizens, through
increased awareness, collective action and new forms of participation, have
become vital to the process of holding the government to account, and
ensuring transparency in decision making. This is indeed the old order
changing, making way for the new. This phenomenon is most evident in the
case of the employed and educated middle class—a class that is now willing
to take to the streets and actively participate in electoral politics. The era of a
discerning and demanding class of citizens has come to stay.
Countries worldwide have had a new political paradigm emerge after
such upheavals. The mass movements are largely against failures in the
system, or when the gap between what governments should be doing and are
actually seen to be doing becomes vast. The movements seek to make
systems work to their ideal capacity; they hope to make those impeding this
process account for their misdeeds. Street protests globally are against
inequality, unfair treatment and injustice in the policies of nations that have
not, through regulators or the administrative set up, checked the greed of a
few. It is imperative for legislators to harness the excesses of the top one
percentile of wealthy individuals, shore up the middle class, and empower
those at the bottom of income distribution. The most oft-repeated statement
by public officials, when confronted with a large number of misdemeanours,
is—‘the law will take its own course’. Unfortunately, this is exactly what
does not happen. Any number of impediments are placed in the way of the
law taking its course. What we fail to recognize is that enlightened kings and
vibrant democracies have been successful and popular only because the rule
of the law was allowed to prevail.

THE ROLE OF PROBITY AND ETHICS IN PUBLIC LIFE

Probity in public life is an important step towards building the character of a

nation and its citizens, and the key to stability and economic growth. A
country is not only respected for its mountains and forests, roads and rivers,
monuments and structures, but also for the quality of its human resources—a
value-driven society is the hallmark of a progressive nation. Today, as
democracy takes root all over the world, people have come to demand good
governance and ethics in public life. An ethically governed state has become
as important today as the purity of the air we breathe or the water we drink.
Even as India marches ahead maintaining a robust rate of economic
growth, corruption continues to be an area of major concern. The country is
rated very low in the Corruption Perception Index by Transparency
International.134 According to a 1999 UNDP report on South Asia, if India’s
corruption levels were to decline to that of Scandinavian countries, its GDP
would increase by 1.5 per cent and its FDI by 12 per cent.135 Dr Bimal Jalan,
the well-known economist and former governor of the Reserve Bank of India,
in his book The Future of India136 has estimated that all things remaining the
same, if there were no corruption, India’s growth rate would have been nearly
8 per cent in the 1980s and 1990s, rather than close to 6 per cent. Ethical
management of resources is, therefore, of utmost importance to optimize the
benefits of growth.
The concerns regarding governance and, in fact, corruption-free
governance, are not new. While we are all familiar with Jawaharlal Nehru’s
famous ‘tryst with destiny’ speech on the midnight of India’s Independence, I
refer to another speech made by our first vice president. Speaking on the very
same occasion, Dr S. Radhakrishnan, a great visionary and statesman, said:
Our opportunities are great but let me warn you that when power
outstrips ability, we will fall on evil days. We should develop
competence and ability which would help us to utilize the
opportunities which are now open to us. From tomorrow morning
—from midnight today—we cannot throw the blame on the British.
We have to assume the responsibility ourselves for what we do. A
free India will be judged by the way in which it will serve the
interests of the common man in the matter of food, clothing, shelter
and social services. Unless we destroy corruption in high places,
root out every trace of nepotism, love of power, profiteering and
black-marketing which have spoiled the good name of this great
country in recent times, we will not be able to raise the standards of
efficiency in administration as well as in the production and
distribution of the necessary goods of life.137
In quoting Dr Radhakrishnan, I am only drawing attention to a concern which
has manifested itself in the country for a long time—corruption in public
dealings. Sadly, today’s level of probity in public life paints a dismal picture.
We are confronted with scams of the worst kind, involving political leaders,
civil servants and corporates. We see a deficit of trust and ethics in
governance. Today, more than ever, every patriot at heart wants to build a
country which truly emerges as a global leader. But today, more than ever,
each one of us faces the dilemma of how best to introduce ethics and morality
in public life, and give GenNext a heritage that they can be truly proud of.
Today, more than ever in the history of India, every patriotic citizen
wants to build a country which truly emerges as the global leader. But today,
more than ever before, each of us faces the challenge of weaving ethics and
morality with public life. The commencement of the present millennium in
India was exciting and rewarding. It helped provide comfort within the
country and also globally that a vibrant Indian democracy was capable of
achieving close to double-digit growth. We have successfully overcome the
stressful situations preceding the 1991 reforms, consolidated initiatives taken
post the unfolding of the reform agenda, and withstood the shock of the
Asian Tigers nearly folding up. The country even managed to survive the
initial setbacks of the financial meltdown which commenced with toxic assets
originating from the USA. However, since practically all major developed
and developing economies are now globally networked through the
operations of trade and financial institutions, the subsequent economic impact
created difficulties for India.
While India’s vibrant democracy countered many of the factors leading
to unrest among the citizens of several developed countries, in the latter years
of the first decade of this millennium, our country, in turn, also witnessed
momentous churning in civil society, which led to an outburst of public
dissent, and an outpouring of young men and women on to the streets. The
reasons were for all to see—a perceptible build-up of resentment against
unmet demands, callous disregard for aspirations, and the insensitivity of and
corruption within the administration.

THE CITIZEN’S VOICE

The latter part of the first decade of this millennium, which saw citizens of
several developed countries participate in waves of protest, also witnessed a
very severe churning in civil society in India. While this may have been
provoked by a number of events, the spontaneous outpouring of young boys
and girls on the streets of India in December 2012 posed a challenge to the
administration.138
2012 will go down in the history of the Indian democracy as a defining
year: a year in which the citizen took centre-stage to debunk the myth of the
silent majority. This certainly portends a maturing of Indian democratic
forces. It’s too early to predict the extent to which the political class and
administration has come to terms with this factor. However, it is clear that the
citizens seek a dialogue—a dialogue in which they can participate in
governance, call the responsible parties to account, and seek transparency in
policy formulation—so as to develop a new moral and ethical framework.
The country is at inflection point; if the heightened outrage of the citizenry
and the urban middle class is moulded in a positive manner, it will translate
into tremendous synergy between the government and its people.
There are distinct signs of the urban Indian middle class mobilizing
themselves politically. There are also signs of a tenacious assertion in this
mobilization. This mobilization debunks conventional wisdom that the white
collar, urban citizenry is unwilling to take to the streets to pursue causes; that
ordinary civilians would rather confine themselves to living room
discussions, television debates and college politics; that several national
residents take pride in not going to vote, look down upon caste and regional
politics, and consequently are never sought out by political parties. Rather,
suddenly this disparate group is uniting for a cause.
What has stirred our citizens? Perhaps it is the rampant corruption at
every government office, to procure just about any document—a birth
certificate, a driver’s license, a hospital bed, a gas connection. Perhaps it is a
series of cases involving Jessica Lal, DGP Rathore or Manu Sharma. Perhaps
it is the realization that they can no longer tolerate being denied basic
amenities such as drinking water, power and security. Perhaps it is a TV clip
of a state minister telling officials that it is okay to steal a bit, but one should
not loot.
To understand what has stirred us, as citizens, we need to do a clinical,
objective and incisive analysis of the scenario today. As Indian democracy
ages, India grows younger; in other words, the median age of its population is
only twenty-five, which is about fifteen years younger than that of the USA.
This young population has grown up in a ‘flat world’, in a world that is
totally wired, networked across political and geographical frontiers. This
generation has grown up with respect for all democratic institutions and with
pride that the vibrant democracy that we practise has delivered double-digit
growth. They also read and hear statements, as made by President Barack
Obama, that democracy involves accountability, and accountability can only
come through transparency. It is such aware, informed and demanding youth
who will keep holding the government to account for all its actions. It is this
cross-section of the urban middle class that seems to have awakened; they see
a major role for themselves in building this nation and influencing policy.
Hence my proposition that public supervision of government policy has
matured. Also, as has been demonstrated by subsequent governments through
the 73rd, 74th Amendments, Right to Information Act and the
implementation of flagship programmes through Gram Panchayats,
participative governance has come to stay.

GOOD GOVERNANCE

The principles of good governance, as endorsed by the United Nations, are

transparency and accountability; fairness and equity; efficiency and
effectiveness; respect for the rule of law; and high standards of ethical
behaviour.
The need for able governance has never been so strongly felt as in the
present day world. While developed countries have to deal with the aftermath
of the economic slowdown, developing countries have to struggle to ward off
economic downturn, create employment opportunities and meet the growing
aspirations of a demanding populace. Indeed, if we look at the Indian
experience in the last decade and a half, since the opening of the economy
from 1990s, we observe that despite having performed well in almost all the
sectors in the economy since liberalization and withstanding the global
economic slowdown, we failed to achieve the true potential of liberalization
reforms. In such a scenario, the need for greater probity, transparency and
accountability in governance gains added significance.
As such, issues of governance, equity and inclusiveness are as much the
responsibility of corporates as of the government. This is because the
relationship between society and corporates is one of mutual dependence.
However, in the recent past, issues relating to corporate accountability have
come into sharp focus, with instances of corporate governance failure and
auditing irregularities, both at the national and international level, causing
major embarrassment—a case in point being the Satyam saga. While we have
grappled with questions of revenue, fiscal and current account deficits, it is
the deficit of ethics in corporates that will have long term deleterious effects
on the economy.
Having said that, it is important to bear in mind that there is an element
of higher accountability on the government, since the government collects
money from the public (as tax) and spends this on behalf of the public (to
provide infrastructure or run welfare schemes). Therefore, the government is
obligated to work in the interest of its citizens; remain answerable to the
public for policies, decisions and performance; prove that its actions are fair,
equitable and transparent; and deliver accountable governance.
Unfortunately, the actions of the last decade, discussed earlier, which
have come into the public domain, indicate that ethics and integrity seem to
be lacking. While the supremacy of the elected political executive in
parliamentary democracy cannot be denied, and while the political executive
is certainly superior to civil and uniformed bureaucracy, the former owe their
allegiance primarily to the ultimate stakeholder on whose behalf they act—
the public. In other words, since the political executive is an agent of the will
of the people, it is incumbent on the executive to remain accountable to the
citizenry. The executive does not need to be advised to reform; rather, it must
put in place measures of self-reform. For instance, the election commission
cannot restrict muscle or money power in elections; the participants in this
exercise alone can.
We have, over the last few years, heard expressions—not wholly
uncommon—such as crony capitalism and policy paralysis. Many countries
have had to come to terms with these expressions.
History speaks of a number of instances when kings and even elected
leaders took resort to cronyism. In many cases, this even delivered good
results. It is said that when Vienna was being built, the rulers gave parcels of
land on the main avenues to respected and prominent business houses and
families to construct aesthetically magnificent structures. The result is there
for all to see. However, it’s important to remember that the clinching factor
here is that the ‘cronies’ actually delivered quality results.
Unfortunately, this is not the story that has unfolded in India. We have
had examples of cronyism at its worst—with contracts being rigged, and
‘cronies’ being advised to bid at rates that ensure that their bids are winners.
Once the bid is accepted, the saga of concessions starts. We have seen several
such examples—the construction of the national highways, airports, power
plants, ports, PPP contracts, etc. To some extent, such cronyism could have
been overlooked, had the cronies actually delivered. Sadly, because they
didn’t, our infrastructure remains mired in controversy and burdened by
financial difficulties.
Cronies emerge out of the ‘turf’ paradigm that has played itself out in
the last six to eight years. There are categories of cronies. They belong to
political parties, regions and states, and individual power brokers, and they
emerge as necessary players in sectors where they actually have no strength.
Turf wars come to be witnessed, and lead to an atmosphere of distrust
between the government and the business community, and between people
and the government.
Cronies have neither domain knowledge nor financial strength to
deliver. They use their ‘connections’ to borrow from the banking sector—and
that too, from public sector banks that are prone to manipulation. This is the
underlying reason for non-performing assets (NPA) of public sector banks
going up manifold. The RBI’s own compilation shows the gross NPAs of
public sector banks increasing to a whopping 3.61 per cent, which by all
standards marked unprecedented high levels in 2013. Even if we were to
accept the argument that these banks had to advance money in difficult times,
why is it that the NPA of private sector banks is only half this percentage? It
does not require much analysis to ascertain the reasons. Stories of Kingfisher
airlines and Bhushan steel are only now emerging in trickles. The amount
that has gone into corporate debt restructuring is another story; it contains all
the marquee names.
Many of those who bemoan the malfeasance that has crept into
appointment processes, are aware of the names of the nominee government
directors on public sector bank boards, and the absence of ‘fit and proper’
criteria for their nomination. However, few take steps to correct the situation.
Somewhere, someone will have to take the bull by the horns. The process
cannot be delayed by even a day.
Equally, it is imperative for the bureaucracy to perform its duties—to
think big, be bold and loyal to the Constitution instead of to any individual.
Bureaucrats are meant to be professionals; they have to be the steel fibre in a
frame which holds a structure together. They have to keep the nation in focus
and not hold on to their kursi.
The India story attracts worldwide attention as it involves one-sixth of
the global population. All decisions that we take regarding political reforms
and economic liberalization will have consequential global ramifications. We
need to recognize that democracy is meant to empower the people and not
emasculate them. Empowerment will be felt only if we have an intrinsic
belief in individual freedom, accept personal and social responsibility,
display ethical behavior in all our actions, and unswervingly uphold the rule
of law.
I am an economist by training. My knowledge of English literature is
minimal. However, I take recourse to Shakespeare to emphasize the point that
tomorrow belongs to the people who prepare for it today.
There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.139
We, as conscious and informed citizens, must ensure transparency,
accountability and morality in the functioning of our government. Far too
much is at stake, and for far too many in this country, if we choose not to take
action. The time to usher in change is now.
I have mentioned in my preface that I decided to write to keep future
generations apprised of the pitfalls to be avoided in the mission for nation
building. The pain that they have experienced should inspire in them the
strength for greater success. Each challenge must spur greater response. Each
failure should provide a greater stimulus for success. And more importantly,
it is vital to recognize that success will not be handed on a platter; one will
have to go out into the sun and toil for it.
This is the quality that will set the men apart from the boys. If we have
the ambition to be counted among the nations that matter, we have to ensure
that we become change agents. It is incumbent upon each one of us to ensure
that the space around us is ‘clean’—clean in every sense of the word. An
aggregation of such individual efforts will make for an ethical and committed
society. It is only fair and able governance which can incubate and nurture
sustainable and inclusive growth. This is a pursuit that we have no option but
to embrace, and I am convinced that GenNext can do so.

—————————
132R.P. Kangle, The Kautilya Arthasastra (Bombay: University of Bombay, 1972).
133See Patricia Day and Rudolf Klein, Accountabilities (London: Tavistock Publications, 1987).
134‘Corruption Perceptions Index 2013’, Transparency International, in
<http://www.transparency.org/cpi2013/results>, accessed on 16 June 2014.
135‘CVC Unveils Three-Point Plan to Fight Corruption’, The Hindu, 24 June 2001.
136Bimal Jalan, The Future of India: Politics, Economics and Governance (India: Penguin, 2013).
137Sarvepalli Radhakrishnan, ‘The Dawn of Modern India’, The Great Speeches of Modern India,
edited by Rudrangshu Mukherjee (India: Random House, 2011).
138See ‘Delhi Gang Rape: Protests Go Viral Nationwide, Unstoppable Public Outpouring as Gang
Rape Victim Dies’, The Economic Times, 29 December 2012.
139William Shakespeare, Julius Caesar, 4.3.218-224.
APPENDICES
 Appendix 1
Letter from CAG Vinod Rai to Prime Minister
Manmohan Singh, dated 17 September 2010, on the
role of internal and external audit
 Appendix 2
Office memorandum issued by the ministry of finance,
dated 13 June 2006, on whether performance audit falls
within the mandate of the CAG
 Appendix 3
Letter from CAG Vinod Rai to Prime Minister
Manmohan Singh, dated 22 March 2012, on the
challenge posed by leaked reports
 Appendix 4
The media policy issued by CAG V.N. Kaul, dated 16
March 2006
Office of the Comptroller and
Auditor General of India
Date: 16 March 2006
To

1. All Directors General/Pr.AsG/AsG (Audit) by name

2. All Pr. Accountants General/Accountants General (A&E) Offices.
(As per mailing list)

Sub.: Media Policy—Holding of press conference by the officers of

IA&AD

Sir/Madam,

The Media Policy of IA&AD is intended to facilitate dissemination of the

information contained in the Audit Reports of Comptroller and Auditor
General of India to the Parliament and State Legislatures. The matter
regarding consolidation of the media instructions relating to media policy has
been under consideration for some time. In supersession of all previous
instructions on the subject, following guidelines are prescribed for interface
with media. A comprehensive Communication Policy, integrating the Media
Policy is separately under consideration.

(A) General
(i) The press conference shall be held by the designated officers
immediately after the presentation of each Audit Report in the
 Parliament/State Legislature. All press conferences so organized shall be
Report specific for Central Reports and State specific for State Reports.
(ii) The press conference may be held either within the Parliament
House/State Legislature, after following the prescribed administrative
procedure for holding of press conference by Government officers in
Parliament House/State Legislature, or in the offices of IA&AD.
(iii) The designated officers shall announce at the outset in the media
briefing that in accordance with the provision of Article 151 of the
Constitution of India, C&AG submits his Audit Reports to the President
or Governor, as the case may be, for being laid on the Table of the
Parliamentary/State Legislatures in respect of matters arising out of the
audit of Union Government and State Governments respectively.
(iv) Together with the above, it shall also be stated at the beginning that as
per the procedure, the Audit Reports of Comptroller and Auditor General
of India to the Parliament/State Legislature relating to expenditure and
revenue from the consolidated Fund of the Union or of the States stand
referred to the respective Public Accounts Committee. The reports in
relation to Public Sector Undertakings stand referred to Committee on
Public Undertakings. The Committees examine the Reports of
Comptroller and Auditor General of India and issue recommendations
for remedial action by the Government.
(v) Care shall be taken to ensure that no comments, directly or indirectly,
are made during the press briefing on the functioning of the Committees
of the Parliament/State Legislature, including the factual position about
selection/discussion and issue of Reports which should be obtained by
the press from the Secretariat at the various Parliament/Legislative
Committees. The media may be advised to seek clarifications on these
issues from the Parliament/State Legislative Secretariat.
(vi) The press conference shall be limited to conveying the contents of the
tabled Audit Reports. For this purpose a press brief shall be sent for prior
approval by the report controlling DAI/ADAI and specific approval to
the press brief obtained. The overview, to the extent possible, may be
utilized for the press brief. However, where it is not intended to utilize
the overview as press brief, specific approval of the Headquarters shall
be obtained. Where considered necessary, the report controlling groups
may send the press brief to Director General (Audit) for vetting before
putting up to DAI/ADAI.
(vii) The report controlling wings shall send a copy of the approved Report
to DG (Audit) as soon as the Reports are placed on the Table of the
Parliament/State Legislature, indicating the date on which the Report is
placed on the Table of the Parliament/State Legislature. They may also
circulate copies of the press brief on the spot to media persons attending
the press conference.
(viii) The designated officers holding the press conference may send a copy
of the approved press brief to the editors of newspapers and other
sources of media along with the information regarding the date of
presentation of the Report to the Parliament/State Legislature. They may
also circulate copies of the press brief on the spot to media persons
attending the press conference.
(ix) The designated officers may seek advice and clarifications from DG
(Audit) in the Headquarters office.
(x) Care shall be taken during the press Conference to ensure that the
statements are factual and are confined to what has been stated in the
audit Reports. No opinion on the government and its policies shall be
given during the press conference. The press brief shall confine itself to
the issues of compliance, waste, fraud and performance of
programmes/projects/schemes etc. as brought out in the Audit Reports.
The press briefing is an occasion for conveying factual information and
removing ambiguity on issues/findings included in the Audit reports.
(xi) The press brief shall be non-partisan and without any political slant or
comment.
(xii) No reference to the names of the executive authorities involved in
transactions in Audit Reports shall be made in the press conference, as
such authorities do not have an opportunity to defend themselves at the
time.
(xiii) The matters included in Chapter 1 of the State Audit Reports, or the
chapters in Report No. 1 on the accounts of the Union Government
containing overview shall not be discussed, except highlighting factual
information in various paragraphs. In case media persons seek
clarifications or elaboration on the issues discussed in the chapters, it
may be provided without attribution.
(xiv) These instructions apply both to print and audio-visual media.
Participation in any panel discussion on Audit Reports or on issues
relating to audit practices and their effects shall require prior approval of
 the Headquarters.

(B) Press brief on the Union Audit Reports

(xv) The press briefing for Audit Reports, relating to the Union
Government shall be conducted by the report controlling DAI/ADAI,
who may take assistance of Directors General/Principal Directors at
his/her discretion.
(xvi) DG (Audit) may be kept informed of the schedule for presentation of
the Audit Reports and of date and time of the press conference.
Assistance of OSD (Communication Policy) and Media Adviser may be
obtained by the DAI/ADAI in charge of the concerned Report, if
required by him.

(C) Press brief on State Audit Reports

(xvii) The Principal Accountants General shall preside over the press
conference for the States as the designated officer, where the senior most
representative of IAAD in charge of audit of the accounts of the State
Government is of the rank of Principal Accountant General. However,
all other Accountants General shall be present at the State level press
conference and shall independently clarify matters relating to their Audit
Reports. In other States, the Accountant General in charge of audit shall
hold the press conference.
(xviii) The Principal Accountant General and the Accountant General shall
make it convenient to be present in their headquarters for a press
conference on the day of the presentation of the Audit Reports relating to
the State Government. Any deviation in exceptional circumstances shall
have specific approval of the report controlling ADAI, who may approve
an alternative arrangement.

Please acknowledge receipt.

Yours faithfully,
Sd/-
(A.K. Thakur)
Director General (Audit)
Copy to:
1. All Officers in Headquarters office
2. Secy. To CA&AG.
 Appendix 5
The terms of reference of the GoM
 Appendix 6
Letters from Telecommunications Minister Dayanidhi
Maran to Prime Minister Manmohan Singh, dated 11
January 2006 and 28 February 2006, asking for a
change in the terms of reference of the GoM for the
vacation of spectrum
 GOM 2006—Draft terms of Reference

The Mid Term Appraisal (MTA) of the 10th Five Year Plan has identified
spectrum as a scarce natural resource and the consequential need for its
optimum use by all. Adequate availability of spectrum for telecom services
has been recognised as a significant area and the need for a formalized
institutional arrangement for vacation of appropriate spectrum from existing
users like Defence.
The Prime Minister has approved, in principle, the constitution of a
Group of Ministers (GOM) to address these issues.
The Terms of Reference of the GOM are as follows:

To recommend measures to make available adequate additional

spectrum for growth of telecom sector to achieve high teledensity.
To make necessary funds available to the Ministry of Defence in
particular for replacement of analogue/old equipment with alternate
systems or more spectrally efficient equipment;
To recommend measures for vacation of spectrum in a time bound
manner.
To suggest measures for early introduction of efficient digital terrestrial
broadcasting for vacation of spectrum for other services in line with
international practices;

The Group of Ministers will be serviced by the Office of WPC Wing,

Department of Telecommunications, Ministry of Communications & IT.
The GOM will give its report within a period of six months.
 Appendix 7
The terms of reference of the GoM for spectrum
allocation, issued by the cabinet secretary in 2006
 Appendix 8
Letters exchanged between Telecommunications
Minister A. Raja and Prime Minister Manmohan
Singh, between November 2007 and January 2008, on
spectrum allocation
 Appendix 9
Press release, dated 7 January 2008, highlighting the
interpretation of FCFS as 'first-cum-first served'
 Appendix 10
The PMO’s letter to the ministry of coal, dated 1
November 2004, highlighting the change in policy for
the allocation of coal blocks for captive bidding
 Appendix 11
Summary record of a landmark meeting in the PMO on
25 July 2005 discussing competitive bidding as a
selection method for coal block allocation
 Appendix 12
Minutes of the meeting taken by the minister of state
for civil aviation on 2 August 2004 to discuss the
proposal of Air India’s aircraft acquisition
 ACKNOWLEDGEMENTS

As I end the writing process, I am happy that I embarked upon it. I have said
in the preface: life gives us only one opportunity, and I have been lucky to
get it and grasp it. I have had a lot to narrate. My career has been interesting.
I have enjoyed it thoroughly. Hopefully, I have contributed too, through
whatever assignment came my way.
My first acknowledgement is to all those who worked alongside me in
different projects and locations—for having been such excellent colleagues,
supportive and encouraging. The political personalities I got to work with
were all outstanding and most unlike the image that one carries of politicians.
I am grateful to the scores of faceless colleagues across all levels in the
Indian audit and accounts department, who provided wholehearted support to
our endeavours. In fact, it is this part of my career which powers the book.
How many do I name? Each has been an invaluable asset. Thus, my most
sincere appreciation and gratitude goes to each one of them. I do hope that in
the process of reinvigorating the department they have experienced job
satisfaction.
Dr A.K. Khandelwal, former chairman and managing director of Bank
of Baroda, who himself has brought out a well regarded book, has been
instrumental in nudging me to write. He has been a constant advisor.
I am grateful to my siblings and my progeny, located in all corners of
the world. They have provided me much needed encouragement and have
offered the little nuances which make the book worth reading. My elder
brother, Kamal, has been the embodiment of this, and represents the
enthusiasm of the entire family. I mention only him by name, as he dons the
mantle of the head of the family.
I owe a debt of gratitude to my wife, Geeta who took onto herself the
onerous responsibility of settling down in a new house with no staff support,
and permitted me the time and space to concentrate on my writing. She has
also bravely borne the rather testing times I have had at work, more so in my
last assignment. She has been steadfast in her belief that accountability is the
obligation of every public official.
My publisher and editor have given me a long rope. I am grateful to
them for bearing with me, my idiosyncrasies and, of course, my insistence on
the timing of the release of the book. Kapish has been the quintessential
diplomat. His persuasive powers are immense. The women power of Rupa—
comprising Ritu Vajpeyi-Mohan, the leader of the pack, Dharini and Sohini
—have kept me on a tight leash. Thank you—but for your guidance, this
book would not have materialized.
 INDEX

2G auction, 102-103
2G networks, basic benefits of, 82-83
2G spectrum licensing scam, 51-52, 65, 82-89. See also CAG’s report on
spectrum allocation
2G spectrum pricing clause, 84

accountability, the role of, 202-206

Ahluwalia, Montek Singh, 42
Airbus A340 aircraft, 177-178
aircraft acquisition process and issues, 178-187
Air India purchase-related issues, 177-187
Air Sahara, 189
Aiyar, Mani Shankar, 120
AKER Floating Production (AFP), 166
Antony, A.K., 12
Apang, Gegong, 24-25
Arora, Sunil, 181-184
Asian Games, 1982, 126
audit, function of, 35-36
Awasthi, A.K., 162

Bank of Baroda logo issue, 31-32

Bhanot, Lalit, 125, 127
Bhargava, Jitender, 180n119, 187
bilateral flying rights, issues of, 188-192
Boeing 737-800 aircraft, 177-178
Boeing 777ER, 179, 190
bond copy, 101

cadre allotment process, 3

CAG, mandate of, 51-57
CAG’s audit reports, government’s perception of, 37-47
CAG’s (Duties, Powers and Conditions of Service) Act 1971 [DPC Act], 53-
56, 113
CAG’s media interactions, 69-71
CAG’s report preparation for spectrum, 110-111
CAG’s role and position in the PAC, 106
cashew business of Kerala, 12-13
CBI enquiry against Atul Rai, 72-77
CBI’s administrative control, 78
central information commissioner (CIC), 64, 204
Chanda, A.K., 39, 69
Chandrasekhar, K.M., 9, 34, 128
Chatterji, Pulok, 92-93
Chaturvedi, B.K., 181
Chaturvedi, G.C., 170-171
Chaturvedi, T.N., 50
Chauhan, B.S., 69
Chavan, Prithviraj, 120
Chawla, Ashok, 107, 150, 170-172
Chidambaram, P., 31-33, 102, 114
Christuvinte Aaram Thirumurivu, law and order issue related to, 18-20
citizen’s voice, 208-210
civil aviation, CAG audit of, 176-177
CNBC TV18’s India Business Leader Awards, 37
coal allocation to private power producers, 148-152
coal block allocation issue, 137-157
coal blocks, criteria for the allocation of, 139-142
Coal India Limited (CIL), 137, 139, 153-155
Coal Mines (Nationalisation) Act, 1973, 139, 144, 146
Coal Mines (Nationalisation) Amendment Act, 1993, 139
Coal Mines (Nationalisation) Amendment Bill, 2000, 142
coal production and uses, 139
Code of Criminal Procedure (CrPC), 5, 10, 19
committee on public undertakings (COPU), 71
Common Wealth Games, CAG audit of, 127-136
Commonwealth Games Arrangements Act 2001, 126
Commonwealth Games (CWG), XIX, 121-123
Commonwealth Games Federation (CGF), 123
Communist Part of India (Marxist) (CPM), 17, 21, 28
competitive bidding-based system of allocation, 142-148
complex ‘roster’ principle, 3
compressed natural gas (CNG), 160-161

Dabhol Power Project, 173

Davy, Kim, 26
Delhi metro, audit report of, 56
Department of Telecom (DoT) parameters for spectrum, 95-97
deputy secretary, entitlements of, 15
Devas Antrix S-band spectrum issue, 118
Dikshit, Sheila, 120, 136, 121n65
District Collector of Thrissur, stint as, 9-11, 15-22
Dutt, Sunil, 124

Emirates, 189-192
entitlement hierarchy in the government, 14-15
Etisalat International, 96
excellence, pursuit of, 197-201
excise officers’ yardstick, 28
extractable reserves, computation of, 152-153

Farooqui, M.F., 102

Fernandes, George, 39
first-come-first-served (FCFS) policy, 84-85, 87, 90-91, 93-97, 250
floating, production, storage and offloading (FPSO) facility, 166-167

Gandhi, Indira, 5, 14
Gandhi, Rajiv, 42
Gandhi, Sanjay, 14
Gill, M.S., 122, 124n67
good governance, 210-213
Gupta, K.K., 7

Halliday, John F., 5, 8

Host City Contract, 123-124
hydrocarbon exploration, 159-160. See also Production Sharing Contracts
(PSCs) in gas exploration
hydrocarbon exploration, discovery related issues, 163-164
hydrocarbons extraction, CAG audit of, 161

IFCI CMD issue, 72-77

Indian Frontier Administration Service (IFAS), 5
Indian Olympic Association (IOA), 123-124, 126, 134
Industrial Development Bank of India (IDBI), 31, 76
Industrial Finance Corporation of India (IFCI), 31, 72-77
insiders and outsiders, 3
investment multiple (IM), 168

Jaiswal, Sriprakash, 41, 137

Jalan, Dr Bimal, 206
Jet Airways, 189
Jethmalani, Ram, 42n12
John, Baby, 11, 13
Joint Parliamentary Committee (JPC), 66
joint secretary, cabinet secretariat, stint as, 29-31
joint secretary, ministry of defence, stint as, 22-27
Joshi, Murli Manohar, 107, 110
JPC report, 105-106, 110-119
Justice Venkatachaliah commission, 130, 131
J-Virus, 41

Kalmadi, Suresh, 123-125, 136

Karunakaran, K., 10-11, 20-21
Kashyap, Subhash C., 65
Kaul, V.N., 70, 158, 223
Kerala Dramatic Performance Rules 1964, 20
Kerala experiences, 7-13
Kerala secretariat, 29
Kerala State Cooperative Marketing Federation, 12
Khan, Colonel Ayub, 47
Kittu, 23
Krishna Godavari (KG) basin, case of, 163-164
Kumar, Vijay, 69-70

Lal, Jessica, 209

Left Democratic Front (LDF), 21, 27
letters of intent (LoI), 85, 88, 91, 95, 99

Mahajan, Pramod, 27
Mahajan, Vini, 92-93
Maran, Dayanidhi, 84, 229
Mason Program, 21
Mathrani, Roy, 117
Mattoo, A.K., 125
Melbourne CWG 2006, 126
Menon, C. Achutha, 10
Menon, K.P.K., 8
Menon, Krishna, 39
Menon, T. Sivadas, 28
mid-career training programme, 21-22
Mines and Minerals (Development and Regulation) Act (MMDR Act), 1957,
 145-146, 149
Moily, Veerappa, 43-44, 138
MP State Mining Corporation, 156
Mukherjee, Pranab, 38, 48, 55, 87
Mukhopadhyay, Sukumar, 105

Nagaland cadre, training and district experience as, 3-7

Nambiar, K.A., 27
Narayanan, Dr S., 31
Narayanasamy, V., 129, 131-132
Nath, Kamal, 86-87, 89
National Aviation Company of India Limited (NACIL), 176
National Games of 1987, 17
National Telecom Policy (NTP 1994), 82-83
natural gas, 160
Nayanar, E.K., 28
Nehru, Jawaharlal, 207
NELP regime (New Exploration Licensing Policy), 158-159, 161, 165
Ninan, T.N., 103-104
Noddy books, 59
Northern Coalfields Limited, 154

open skies policy, 176, 188-190, 192

organizing committee of CWG, 123-126

PAC, 65, 71
PAC for 2010-2011, 107
Pandit, R.V., 40
Parakh, P.C., 142,
Patel, Praful, 175, 180n119, 181n122, 183n123
Pawar, Sharad, 37, 38n6
police academy talk and its impact, 48-50
Pope visit to India, 20-21
press release of CAG reports, impact of, 64-69
prime lending rate increase issue, 32-33
principal secretary, finance department, stint as, 27-29
probity and ethics in public life, 206-208
Production Sharing Contracts (PSCs) in gas exploration, 158-174
public auditors and social obligation, 58-62
public-private-partnership contract (PPP), 159-160, 174
public sector banks, repositioning and reorientation of, 31-32
Purulia arms drop case, 26

Radhakrishnan, Dr S., 207

Rai, Atul Kumar, 72-77
Rai, Geeta, 47
Raja, A., 44, 75, 81, 84-94, 100-101, 104, 107, 234
Rajan, Raghuram, 138
Rangarajan, Dr C., 174
Rao, Dasari Narayana, 137, 142-144
Rathore, DGP, 209
Reliance Industries Limited (RIL), 45,162-167, 169n103, 170n106, 171n108,
173
Right to Information (RTI) Act, 55

Sakthan Thampuran Nagar, 16

Sardar Vallabhbhai Patel National Police Academy, 48
SBM, 167
secretariat posting in Trivandrum, 11-12
Sema, Hokishe, 3
Seshan, T.N., 131
SEZ policy, 107
Sharma, Manu, 209
Shunglu, V.K., 69, 94, 128, 129, 131
Sibal, Kapil, 52, 102-105
Singh, Amar Pratap, 72
Singh, Arjun, 124
Singh, Buta, 41, 126
Singh, Digvijaya, 50
Singh, Dr Manmohan, 34, 44, 50, 78, 81, 84-89, 136, 173, 217, 220, 229, 234
Singh, Jaswant, 30-31, 76
Singh, N.K., 46-47
Singh, Randhir, 125
Singh, R.P., 99-101, 106, 108-112
Societies Registration Act of 1860, 125
Soren, Shibu, 143, 145
spectrum allocation, CAG’s report on, 93-104. See also spectrum audit report
in Parliament
spectrum audit report in Parliament, 105-119
spice trade, 12
Srinivasan, K., 8-9
Srinivasan, M.S., 158
S Tel, 95-99, 111
Subramaniam, Gopal, 51
Su-30MKI aircraft deal, 27
Swan telecom, 96, 91n41, 108

Tata, J.R.D., 175

Tata Airlines, 175
Tata Teleservices, 96
Telangana agitation, 48
telecom regulatory authority of India (TRAI), 85, 97, 99-100
teledensity argument, 89-90
Telenor, 96
telephone connections in India, 2010, 82
Tewari, Manish, 37, 41
Thrissur, politics of, 10-11
Thrissur Urban Development Authority, 16
Tiwari, Dheeraj, 72
Tiwari, N.D., 40-41

Ultra Mega Power Projects (UMPP), 118

undersecretary, ministry of commerce, stint as, 13-15
Unified Access Services (UAS) regime, 95-96, 100
Unitech, 96, 111
United Democratic Front (UDF) alliance, 21

Vadakkumnathan Temple, 16
Veeraswamy judgement, 50
Vajpayee, Atal Bihari, 27, 83
vendor qualification criteria (VQC), 166
Venkatramanan, R., 22
Verma, Amitabh, 73, 77
V.K. Shunglu Committee, 129

‘water pollution in India,’ audit of, 60

Yadav, Mulayam Singh, 23-24

‘Zero Credibility,’ 103-104

zero loss hypothesis, 97, 102-104
 Table of Contents
Title Page
Book Information
Copyright
Dedication
Contents
Foreword
Preface
THE JOURNEY
1. Dimapur to Delhi
2. The Role of Audit
3. Media Policy
4. The CBI
FOLLIES
5. First Come, (Not) First Served: The 2G Saga
6. Sound & Fury: The PAC & JPC Saga
7. The Punjabi Wedding: Commonwealth Games 2010
8. Coal That Turned to Gold: Mine Block Allotments
9. A Slippery Deal: Gas Exploration
10. Off Course: Civil Aviation
COURSE CORRECTION
11. Excellence, Accountability & Probity
The Pursuit of Excellence
The Role of Accountability
The Role of Probity and Ethics in Public Life
Good Governance
Appendices
Acknowledgements
Index