The CAG And The Forced March To Mediocrity

Governance  | 10 December 2010  | print

A narrow focus on the lowest bidder deprives us of excellence in the public sector

During the 30 May 1949 Constituent Assembly debates, Dr BR Ambedkar described the Comptroller and Auditor General as “probably the most important officer in the Constitution of India” with duties “far more important than the duties even of the judiciary”, one who should have “far greater independence than the judiciary itself.” That is a remarkably strong statement and underscores the unique position of the CAG. It is a constitutional post, and the holder of that office can only be removed in the same manner and for the same reasons as a Judge of the Supreme Court.

The amplitude of this remit, and the thinking behind it, should have informed the working of the CAG which should have served two purposes: to control corruption and prevent wasteful government expenditure and also foster excellence in the public sector. Tragically, it has done neither. Corruption is more widespread now than ever before; and, in the public sector, the persistent and often hair-splitting approach of government audit has spawned a culture of mindless mediocrity.

The starting assumption has, for the longest time, been that cheapest is best. The lowest tender is the one chosen. Decisions are often faulted simply because had they not been taken, a financially more fruitful result might possibly have resulted. It seems not to matter that that result is uncertain and might never in fact yield any such result; an “audit observation” does enough damage.

The direct consequence is in commercial matters, no government or government agency is ever willing to take a rational decision; and second, that in awarding contracts, the lowest bidder (known as L1) always succeeds. That is why law departments of every government agency routinely file useless appeals and applications. No law officer or department head wants to be asked to explain why he decided not to appeal (after all, who knows what a court will finally decide?) That a vast amount of public money is wasted on these useless matters is never taken into reckoning—and there is a very real, though perhaps not immediately obvious, cost to taking up a court’s time.

Or take road building projects. One reason why so many of our roads are so terrible is that the best contractor just does not get the job. Typically, a bidder for a road construction contract will quote absurdly low. This bidder may have no more than the minimum technical skill, but is incapable of anything innovative. Once he gets the award, he then starts demanding escalation and additional remuneration. In the end, the government ends up paying significantly more for an inferior product. Government audit looks only at the known expenses; it does not evaluate or quantify innovation, longevity of the final product or even the intrinsic value of excellence itself. The audit becomes an attempt to unscramble the past instead of planning for the future.

The National Highway Authority of India has for some years been engaged in a highway-building project unprecedented in our history, that vast network of highways and expressways called the Golden Quadrilateral. The project’s impact is profound; more than any other single project, this will change the way the country works. The CAG has routinely found fault with the NHAI. In May 2005, the CAG castigated the NHAI for not having standardized lengths, cross-sections and bills of quantities for items such as bitumen. NHAI’s response, that such a standardization was impossible given the varying climatic conditions and terrain of different segments, seemed not to matter. In 2008, the NHAI was hauled up again for not having standardized Detailed Project Reports. Experts disagreed, pointing out that this kind of homogenization only helps accountants and gives no room for innovative road engineering.

Where it really mattered, the CAG missed the bus entirely. Corruption in the Bihar segments of the network was exposed not by the CAG but one of NHAI’s own project directors, Satyendra Dubey (who was later murdered).

There are only a handful of government projects post Independence that are truly outstanding. The Delhi Metro is one; and, despite the CAG’s carping, the NHAI has been able to produce some roads that are world class. But these are exceptions, and their successes are because the men who head these agencies have had the courage to stand up to the CAG. For the most part, fear of audit forces a march to ever greater mediocrity.

In a truly piquant turn of events, in July 2010, the CAG considered doing away with tendering in the appointment of internal auditors for government agencies. The Institute of Chartered Accountants of India complained that too many auditors were quoting unrealistically low fees and possibly colluding with the agency. The ICAI felt that the “acceptance of lowest tender is not desirable in all cases, as there could be compromise on quality”.

The ICAI is completely right, but its view in not limited to audit. Of course we need the CAG; it is an important check on corruption and government spending. But we need a CAG that will look beyond mere numbers and intelligently evaluate intangibles: better roads that last longer; innovation in engineering and design; cautious litigation.

There is hope yet. A few days ago, the CAG released the findings of its first-ever environmental audit, finding horrific gaps in the tannery location project near Kolkata. The report found that despite having spent over Rs.135 crores, there is still immense groundwater contamination and this has caused an increased incidence of cancer and renal failure in the local population. There is still no safe solid waste disposal system, no treated effluent sump and pumping station, no effluent treatment plant. Over 15 million litres of untreated effluent—half the total generated—is being discharged in the open. The report goes further. It notes that the National Biodiversity Authority has not yet brought into force key regulatory schemes. No action has been taken to list endangered medicinal plants or provide for their conservation. The CAG report also demands greater efforts from the Botanical Survey of India, including protecting plant species in fragile ecosystems.

This is not just a rap sheet, and this is not just about government spending. This is an altogether different approach, in concept, philosophy and execution. This extremely well-produced report has important recommendations that should inform future planning and the working of several agencies. Implicit in the report is the recognition of that even intangibles have a value, and it matters little whether or not that value is actually monetized.

If the August 2010 CAG Guidelines on environmental audit and its recent audit are anything to go by, we might yet see an auditing system that with both imagination and sensibility.