NOT JUST AN ACCOUNTANT

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Copyright Vinod Rai 2014

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eISBN: 9788129134509

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 I dedicate this endeavour to my parentsto 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 manuscriptwhich deals with vital issues like
transparency, accountability and ethicsI was convinced
that our youth had to be sensitized about these principles,
and the unique quality of righteousnessrighteousness 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 seventeena 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 emergingthat 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
storythe 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 muchnot too muchonly 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
chancedont 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 nationwhich prides itself on the
greatness of Ashoka, the nobility of Akbar, the compassion
of Buddha and the courage of Gandhiseems 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 sphereseconomic,
scientific, military, sportsand 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 teama 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 auditnay, the CAGfor 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
platitudesthe 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 probablyin 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
consciencethe proverbial last straw on the camels 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 usualwe 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 Mahatmas 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 optionit 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 nations natural
resources are finite and have to be exploited to achieve
the twin objectives of peoples 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
countryor for that matter, any countryhas 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 ministers 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 nations 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 generationthe
avowed objectivefell 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 nations 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 nationits 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 probationersR.S. Pandey, A.P. Sharma,
Ravi Dhingra, N.G. Laloo and Ihad 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, Nagalands 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 governmentthe 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 governments 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-mans 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 toobecause
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 anghs 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 theyd weave into a necklace. These
necklaces with brass human-head beads would be worn
proudly by the menfolk.
 A Collection of Skulls in the Anghs 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
decorationshuman skullsthirty-seven of them proudly
displayed. The chatai explained that this was their family
heirloomthe maximum number of heads in these parts
a unique collection-cum-trophy indeed! The traditional
animal in these parts is a mithuna 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 incidentthe 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
Menons 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 Keralas
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 Cannanores
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 valuesI
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 roadand 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. Thats 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. Padmakumars 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
states monopoly procurer of raw cashew nuts. The raw
cashew so procured would be allotted by the
governments 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 governments 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 scarcethe age of mobile phones was still
to come.
The minister did the next best thinghe 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
ministers eyes grew to the size of footballs and his jaw
dropped opennot 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 childs 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
ministers 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 Johns 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 Gandhis younger son, Sanjay Gandhi, was
circulating in hushed toneshushed 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 daylest 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 mya lowly under-
secretarysentitlements 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 upgradehe 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 carthe
majestic and status-establishing Ambassadoris
available only to the secretaries.

This was the entitlement hierarchy in the government at

that timefar 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. Thrissurs architecture is unique,
having grown around the Vadakkumnathan Temple. Around
the temple runs a circular road, with arterial roads feeding
into itquite 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 dissentedthe students
from Vimla College, a popular womens 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 collectors 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
Popes 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 ministers 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, Dont 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 secretarys 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

Delhias 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 Kittus 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 didnt 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 himwhy not carry
out the order and then report back, rather than check on the
situation and revertbut 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 forces
reservations, citing discipline, norms, rules of tenure,
demonstration effect on other officers, etc. It was then the
ministers 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 ministermy sympathies
obviously being with the former. So I made an appearance
in the ministers 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 cant 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 cant 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 timesexciting
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
ministers 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, alls 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 pilots nerves gave in. He blinked. He turned
around and landed at Mumbai. We breathed easy and went
back to sleepto 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
aircraftIrkutsk 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.
Peoples 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 commissioners 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) versiona 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 Malayalamtheir 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 2001an 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 himDr 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 deliverancetranslated, 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 officeas
part of a large number of lateral transfers of joint
secretaries out of the ministry of financeI 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 dependabilitya 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
banks 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 banks
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 Barodas 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 Chidambaramcongratulations for
preserving the functional autonomy of banks.
Sometimesthough not too oftenone 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 governments
iconic convention centre in Lutyens Delhiiconic
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 countrys 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 organizations 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 governments 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 governments 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 agents 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 dragonit
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 CAGs
report with regard to the 2G spectrum.5
This is the governments perceptionthat the CAGs 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 mea 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 objectionwhen we see half
reports being leaked, when CAG officials are
addressing press conferences and talking about
sensational things. [] I havent 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 sayI do not want toI
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 ministers 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 reportReview 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 CAGs 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 CAGs
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 CAGs
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 committeesuch
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
Tewaris 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 Gandhis 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 doesnt end here. Ahluwalia went on to say, The
CAGs 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 youve
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
meetingsas 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
domainit was placed before Parliament on 16
November 2010the 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 situationswhen 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 Honble 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
ministers 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: Didnt 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 ministers query to him
after CAG Vinod Rai protested against the ministers
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 developmenta
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 CAGs
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 2013by
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 Rameshs] instant
response. But dont underestimate the resilience
of rural India, he adds. We have our task cut out
 for us in urban Indiaalthough 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 ones caste has been brought into
prominenceand this after sixty-seven years of
Independence. If one wants to glean the reaction to Jairam
Rameshs 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. Singhs 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 servicemy 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
lifetimes 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 Geetawho is most
unequivocal in her belief that one cannot shirk ones
duties, and one must carry out ones responsibilities with
absolute sinceritythat 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 peoples 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 wrongand 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
Singhs 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 Constitutionsuch that blanket criticism of judicial
pronouncements is assumed to be a breach of judicial
privilege attracting contempt of courtthe 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 its

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 CAGs 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. []
Dont undermine the office of the CAG.22
This verdict has clarified the CAGs 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 CAGs (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
conductis 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 CAGs 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
CAGs 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 mans rights under the Right
to Information (RTI) Actan 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
CAGs 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 departments 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. Thusand based on
a proper risk assessmentprogrammes 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 governments
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 governments 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 isif 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 observationsboth positive and negativeon
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 Blytons
Noddy seriesand 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 agencys
evolution and additional duties. Most of the agencys 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 capitalour 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 CAGs
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.
5CAG Report on 2G Had a Detrimental Effect on Growth: Manish Tewari,
The Economic Times, 27 September 2013.
6Rohini Singh and Soma Banerjee, I Havent 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 Govts 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.
22Dont 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 mediain 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 departments 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 governmentour
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 reportswe
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 CAGs 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 CAGs
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 thingswe 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 CAGs 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
passonly 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 writingand of all
the people, to the prime minister of the countryI had to
be sure about my facts when making these assertions. The
same evening, I got a call from the prime ministers
residence asking to see him the next day. Since I was
travelling to Mumbai the next day6 July 2011I 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 CAGs 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 CAGs 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 CAGs 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. Shunglus 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 petitioners
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 officewas 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 COPUs 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 governments 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 companys
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 wasnt a government-
owned company and that he wasnt 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] Rais superior
in the finance ministry.
This is when [Atul Kumar] Rais 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 governments 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 couldnt come to
any conclusion. But finance ministry officials say
they were closelike 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 outsiders 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 surnameMs 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
cooperationthough not entirely willingof 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 Atuls release with me, I
advised him to defer the release by a month. Hence, the
note was recorded by Amitabhwhich 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 formatan error that could well be a
ministerial lapseis 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 PEthe source is authentic
as it is from the CBI itself. But that is irrelevant. What is
significant is thisunderstanding 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 Rais integrity, rumours are
being floated [...]. Similarly, the enforcement
directorate is supposed to have asked the British
government for information on Baba Ramdevs
island in Scotland.
The CBI, unfortunately, gets caught in the crossfire. Being
an executive agency functioning in the department of
personnelwhich 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 parrot28 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 CBIs
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 ParrotSupreme
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 parade31 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 ministrys
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. Marans 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 Indias
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
areasthe ministry of communications sought the advice
of the ministry of law on how to deal with them. The
ministry of laws 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 DoTs plan of action was
obviously leaking out and causing widespread concern in
official circlesa 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 ministers 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 Rajas 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 Naths
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 companiesprivate companies that, going by
the ministers 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 saidI
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 earlyin September 2009. It is
obviously no ones 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 governmentthe
PMO, the ministry of finance and even the officialdom of
the DoTto counter Rajas consistent and constant
refrain?
Now let us examine Rajas 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
maintained40 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 ministers 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 ministers 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 arms length.44 How can the
office of the prime minister distance itself from such major
decisions? Arms 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 CAGs report on spectrum
allocation:
[] while accepting the governments
 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 CAGs 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 followedwhich, in this
case, was the governments 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 CAGs report
appeared. The auction for 3G was completed on 31 May
2010. The CAGs 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 CAGs 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 neednt 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 wasnt 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 TRAIs 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 lossfrom 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, isnt 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 departments 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 followsaudit 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 generals 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 CAGs
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 todays 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 DGs 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. Singhs
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. Singhs 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 lifeif 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 CAGs 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 CAGs official residence.
For the evening reception, the prime minister regretted the
invite, as did the president. This was the only reception at
the CAGs residence in any departmental officers
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 croreclose to the figure of 67,000 crore
indicated by the CAG, and one-and-a-half times beyond
the governments 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 CAGs
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, Im 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 wasnt 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 thisproclaiming that there
was no malfeasance, and that the CAG had erred. Save a
few committed journalists and fellow travellerswho
could be counted on the fingers of one handnone 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 securethe 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 PMOs Functioning, The Hindu, 29 April 2011.
43See Shalini Singh, Newspapers Show PMO Analysed and Agreed with
Rajas Actions Before 2G Scam, The Hindu, 6 May 2014.
44See Shalini Singh, Within 2 Weeks of the 2G Scam, PM wanted Arms
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.
46Performance 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.
50Govt Blames CAG for Flop 2G Auction, Deccan Herald, 17 November
2012.
51Govt 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.
53CAG Vindicated, Congs 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 CAGs 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 CAGwho, 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 processin 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 lawit 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 itselfwhich was a
good four-and-a-half months before the CAGs 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 companys 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
questionif 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 CAGs report had been placed in
Parliamentvery 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 CAGs
findings. Congress MPs walked up to me during lunch time
and said, We have to ensure that the prime ministers
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 daughtersthis 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 CAGs 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 CAGs 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 didnt 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. Id like to assert that R.P. Singh didnt 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 chairmans 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 ones 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 members 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 democracythe 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 anyones 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:
CAGs 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 reportsthough
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 CAGs 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 JPCwho
were aghast that the CAG overruled the DG (P&T)s
figures of potential losswere 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.
56Did 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.
58R.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, CAGs 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 outdatedit 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 medalsthirty-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 sportspersonsso 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 weddingthings 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 psychejugaad. 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 CAGs
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 structurethe 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 GoMa core
group constituted under the late Arjun Singh, the former
human resource development minister, to coordinate the
work related to the organization of the gameson 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 committeea totally new
creation.
Sunil Dutt wrote to the prime minister expressing
surprise at Kalmadis 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 arrangements69 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 secretaryvisited
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 recommendationsconsidering 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 arms-
 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
Villageand the organizing committees Lalit Bhanots
statement that the standards of hygiene in India are
different71famous across the globe, to drive home the
countrys 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
games72 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 Csthe
CAG, the CVC and the CBIand, on the other hand, it
was getting a probe done obviously in addition to what the
CAG would dothus 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 didnt 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 recommendationjust 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 CAGs 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 memoryefficient 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 powerspowers 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
2001in response to the queries from the Justice
Venkatachaliah commissionwith 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
CAGs 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 CAGs 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 commissionof which, some members
were recently-retired government officialsthe 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 governments 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 CAGs basic functioning would require an
amendment to the Constitution, which was not even on the
governments 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 departments
own budget were salary, travelling allowance and office
expenditure. Budgetary devolutions towards buildings and
construction lay within the CPWDs 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
CAGs 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
CAGs (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 auditorstwo
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. Lets 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. Its a
different matter that the organizing committees 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 expenditureall 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 CAGs 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
governments 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 Kalmadis seat of
power: the organizing committee. But in its final
audit report of the Gamesone of its most
thorough probestabled 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. Thats 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 levelsbe it
Delhi Chief Minister Sheila Dikshit or even PM
Manmohan Singhalong 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 didnt 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_Wis
performance/2011_2012/Civil_%20Performance_Audits/Report_No_6_CWG/C
%20Part-1.pdf>, accessed on 12 July 2014.
69See PMO Appointed Kalmadi Despite Sports Ministers 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
accessed 15 July 2014.
71See Himani Chandel, Our Standard of Hygiene Different, Defends Bhanot,
The Tribune, 21 September 2010.
72Terms of Reference of High Level Committee to Look into the
Organisation and Conduct of the Commonwealth Games2010, 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 CAGs 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 merchantgenerating 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, Indias 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 CAGs 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
committeecame 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 gain88 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 secretarys 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 latters
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 Raos
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 PMOs 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 basisas in, an amendment of
the Actwould definitely be an advisedly superior
arrangement. Yet this course was not considered for
thirteen years since the screening committees 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 ministrys 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 MoCs 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.

Lets 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. Lets grant
this argumentnamely, 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!
Lets look at a second issuethat 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 CAGs calculations that
benefits accrued to private companies, their computations
can be questioned on a number of technical points.93 The
main thrust of the CAGs 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
optionit 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 computedthe
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 Organizations 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, wouldnt 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 allotteesI 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
domainthat 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 reserves6,282 million tonnesone
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--vis windfall gain
accruing to private parties while not adopting competitive
bidding for allotment. Let us follow the government
pronouncements on this issueone 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 hadnt 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
emergedfrom 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.
82PMs 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.
86Power for All by 2012, Ministry of Power, in
<http://www.powermin.nic.in/indian_electricity_scenario/power_for_all_target.h
accessed on 2 May 2014.
87Based on the Prime Ministers 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
accessed on 21 August 2014.
91Minutes of the Exit Conference Held on 25 January 2012.
92PMs 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. Srinivasans 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 operatorsin 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 arenamely
power, CNG, fertilizerthe 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 Parliaments
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 governments 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 earths 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, RILs proposal right from
April 2004that it would not relinquish any area and
instead retain the whole contract area as discovery
areaappeared 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
contractors 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 governments 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 groups (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 CAGs 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
RFP101a 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 governments 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 governments 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
contractors infrastructure for higher production in the
long run, it would save the contractors 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 governments
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
PACthat 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--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
reportwith 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 conclusionthat the system
gives incentive to [an operator to] increase his
investment, or front-end his work plan108 in order to see
that the threshold where governments 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 governments 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 usus
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 Indias share (linked to
the IM), designed in the late 1990s, 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 ministers 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,
wouldnt 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 ministers 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 Parliaments
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 committeeto 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 governments technical expertise to draw
up concession agreements which at least are fair to the
nations 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_Wis
sum.pdf>, accessed on 14 May 2014.
101Performance 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_Wis
sum.pdf>, pp. 34-54, accessed on 14 May 2014.
105Ibid., pp. 56-61.
106See RIL Counters CAGs Critical Report, Business Standard, 10
September 2011.
107Ibid., p. 60.
108See Contracts like Reliances KG-D6 are Designed to Benefit Private
Players: Chawla Committee, The Economic Times, 21 June 2011.
109Ibid.
110Ibid.
111Performance Audit of Hydrocarbon PSCs, CAG, in
<http://saiindia.gov.in/english/home/Our_Products/Audit_report/Government_Wis
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 Karachis Drigh
Road aerodrome to Bombays Juhu airstrip via
Ahmedabad on 15 October 1932. The company set up by
J.R.D.Tata Airmailearned 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
Indias national airline.
During the 1990s, the government, through its open
skies policy allowed private airlines to operate in the
country. The resultant competitionin the form of fare
wars, promotional fares and discounts for seasons and
sectorsbrought 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
chequeredquite 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
Indiaits 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 aviationand, by
extension, of the public sector Air India, which was under
its administrative controlto 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 Indias 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 countrys 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 worlds 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 aircraftthe Boeing 747, named Konarkwhich
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 aircrafttwenty-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 purchaseda 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
governments position was shifting. A rethink slowly set
in, with some alluding that it was the government rather
than the Air India board driving itthe 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 airlines 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 audits 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 huesserving and retiredincluding 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 interpretationwhich
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
ministrys 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 Ministrys 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 Indias 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 Indias 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
ones 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 ministers 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 ministrys 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
Indias 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 Indias 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
airlines projected increase in its market sharefrom 19
per cent to 30 per centwas 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 thisthat 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 capacitya 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 revisitedat 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 boardin fact, they didnt 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 flightwith 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 Indias 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 countrys 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 Indias 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 yearswreaked 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 Dubais 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 behavioura 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
CAAs confidence and, indeed, audaciousnesspossibly
fuelled by the nature of the negotiationspermitted it to
seek three additional points of callAmritsar, Mangalore
and Tiruchirappalliin 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
ministrys files. The joint secretary recorded: []
because of Dubais 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 Indias 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 ministers
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 Indias
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 countrys
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 decisiona conscious decisionafter
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.
118Performance 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_9
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 flights
passenger carrying capacity. It is equal to the number of seats available
multiplied by the number of kilometres flown.
126Performance 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_Wis
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 ones 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 Chinas medal tally?
Thirty-eight gold. Twenty-seven silver. Twenty-three
bronzea 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 questionsand 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 nations 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 nations 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 yearsenough to eliminate poverty
in the country twice over. This reflects on how well we
have been able to manage the countrys 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 daresayand I am relieved to see this in my
lifetimesuch 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 extortionwhich 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 crisiswith negative growth even in developed
economiesour 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 growthconsidered 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
excusesthat 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 formers greatness and extend the tenure of
their leadership. It is for them to improvise and thereby
create a national advantagea 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 societythe agents of changewho
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 governments 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 governments 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 natures 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 ones
tongue, so it is impossible for one dealing with
government funds not to taste, at least a little bit,
 of the kings 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 agencyauditto 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 classa 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, isthe 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 resourcesa 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 Indias 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, Indias 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 Nehrus famous tryst with
destiny speech on the midnight of Indias 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 morningfrom midnight todaywe
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 timecorruption in public dealings. Sadly, todays
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 Indias 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
seea perceptible build-up of resentment against unmet
demands, callous disregard for aspirations, and the
insensitivity of and corruption within the administration.

THE CITIZENS 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. Its 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
dialoguea dialogue in which they can participate in
governance, call the responsible parties to account, and
seek transparency in policy formulationso 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 documenta birth certificate, a drivers
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 embarrassmenta 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
actthe 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 uncommonsuch 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, its
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 examplesthe 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 didnt, 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 sectorand 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 RBIs 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 dutiesto 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 cleanclean 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).
134Corruption Perceptions Index 2013, Transparency International, in
<http://www.transparency.org/cpi2013/results>, accessed on 16 June 2014.
135CVC 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 PolicyHolding 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 2006Draft 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 PMOs 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 Indias 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 locationsfor
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 Rupacomprising Ritu Vajpeyi-Mohan, the leader of
the pack, Dharini and Sohinihave kept me on a tight
leash. Thank youbut 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
CAGs 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
CAGs audit reports, governments perception of, 37-47
CAGs (Duties, Powers and Conditions of Service) Act
1971 [DPC Act], 53-56, 113
CAGs media interactions, 69-71
CAGs report preparation for spectrum, 110-111
CAGs role and position in the PAC, 106
cashew business of Kerala, 12-13
CBI enquiry against Atul Rai, 72-77
CBIs 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
citizens voice, 208-210
civil aviation, CAG audit of, 176-177
CNBC TV18s 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, CAGs 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