dna edit: SC’s laudable move

By allowing the Comptroller and Auditor General (CAG) to audit the account books of telecom companies, the Supreme Court has, in effect, broadened the CAG’s ambit to cover a wide range of sectors where revenue-sharing agreements between the government and private companies are in vogue. The apex court ruled that the CAG was duty-bound to ascertain that the government is getting its legitimate share out of revenue sharing agreements with telecom companies. Telecom companies holding Unified Access Service (UAS) licences, pay an annual licence fee at 6-10 per cent of the Adjusted Gross Revenue (AGR) and spectrum charges computed on the basis of this AGR. At the crux of this judgment is Parliament’s obligation to ascertain that the licence fee and spectrum charges credited to the Consolidated Fund of India did not come at an unlawful gain to service providers and a corresponding loss to the nation.

Telecom companies had approached the Supreme Court questioning the competence of the CAG in auditing the account books of private companies. They argued that Article 149 of the Constitution limited the CAG to only auditing public entities. The court, however, noted that the Constitution must be applied to current needs and requirements, and “into which each generation has to pour its content in the light of its experience”. The 2G and S-Band spectrum and coal block allocation scams, have evidently, influenced the court. “Instances are not rare, where even the Executive, at times, acts hand in glove with licence holders, who deal with the natural resources, hence, necessity of proper parliamentary control over the resources,” wrote Justice KS Radhakrishnan, who also pronounced the recent landmark judgment on transgenders.

The guiding spirit of Thursday’s ruling was distilled from earlier judgments that proclaimed spectrum as a scarce, natural resource belonging to the people and owned and sold on their behalf by the State. By confirming Parliament’s right to know whether revenues from spectrum were “assessed, collected and accounted” for properly, this judgment, has effectively strengthened the CAG’s hand in other battles. The auditor has faced tremendous resistance from power distribution companies in Delhi and Reliance Industries Limited in the performance audit of the Krishna-Godavari (KG)-D6 Basin gas field production-sharing contract. The telecom industry response — that this judgment would intensify the investor-unfriendly perception about India — is predictable. Private auditors appointed by the Telecom Department (DoT) for financial years 2006-07 and 2007-08 found that most companies had underreported revenues to the tune of Rs10,268 crore. But one grouse of the telecom firms is genuine. Besides internal audits, they are also audited by a multiplicity of agencies like the DoT, regulator TRAI, and Telecom Enforcement.

The routine arguments flung against the CAG’s impending entry into more public-private partnerships and sectors involving revenue-sharing are policy paralysis, the presence of existing regulators, and the need for regulators in sectors where none exists. The first assumes erroneously that CAG audits hampers business, while the fact is that the CAG audits are far more likely to uncover scams in revenue/production sharing agreements and identify inefficient practices. The regulators, be it the Delhi Electricity Regulatory Commission tasked with watching the power discoms, TRAI, or the many others in operation have weak mandates and are routinely silenced by political interventions. Ultimately, the biggest challenge is to undertake corrective and penal measures based on the actionable evidence provided by the CAG. The current practice of CAG reports being vetted by Parliamentary committees like the Public Accounts Committee has not yielded results.