Who will watch the watchmen? A guide to the CAG

We’ve elected our leaders, given them power, but now, who watches over them? How do we know that the people in power are doing the right thing? I’m sure we’ve thought about this at some point. And so did our leaders when they formed our country.

The CAG is an independent official, who is possibly the most important government official in India. And today, we try and figure out what the CAG does.

Show Notes

All clips and voices used in this podcast are owned by the original creators

Links to clips used in this episode —

• GC Murmu quits as CAG – NDTV India – https://www.youtube.com/watch?v=2FVnJp0n5P8
• Centre retains GST cess – Times of India – https://www.youtube.com/watch?v=0_iQAuNVgA8

Full Transcript of Episode 28 –

Doston, do you ever wonder what really happens inside government departments? Haan, government yojana and other projects are often announced to us citizens. But how are these projects being implemented? The taxes that we pay the government — how is this money being spent? Is it being used wisely?

Let’s admit it, these are some tough questions for us to answer as citizens. To really find out what’s going on behind the scenes, we may not have access to government data or even understand the detailed financial records of governments.

But there is someone in the country who does. 

This person has access to all financial records of the government, to read every account and inspect every flaw. 

Only a few months ago, we heard this —

[We hear the voice of Ravish Kumar announcing the resignation of G.C. Murmu]

CAG – yaani, the Comptroller and Auditor General of India. 

As much respect as the CAG of India demands, utni hi controversy is also associated with this important role. 

Let’s find out what exactly the CAG does, and why it sparks so many questions.

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The CAG of India – hindi mein kahe toh niyantrak aur lekha parikshak is a public servant who works for the Financial management of our country. The CAG – is actually considered to be at the same level as the Chief Justice of India! 

CAG is a role that is mentioned in Article 148 of the constitution. This article provides that the CAG should be appointed by the President. He or she can hold office for 6 years — or, until a maximum age of 65. 

The CAG is one of the country’s most important government officials — and I’m not the only one who’s saying this. The CAG is 9th on the Indian Order of Precedence, which is a list of dignitaries and government officials ranked in order of their importance. 

The CAG can only be removed if a resolution is passed in both houses with a 2/3rd majority. Considering this, there’s no doubt that the CAG of India is an important and highly-respected official. 

But, what does the CAG do?

You must have heard the CAG’s name in the news. Or maybe you’ve heard the words ‘CAG report’ when a scam is being reported. This is because the primary duty of the CAG of our country is to inspect the government’s financial records — and find out if something is wrong.

Let me explain this a little better. The CAG is actually the head of the Indian Audit and Accounts Department. This is a department which takes care of the accounts of the State and central government departments and government companies. The function of this department is very similar to what an accountant would do for a company – like managing expenses and keeping a record of the income and expenditure. 

At the top of this department is the CAG’s office, whose job is to audit these accounts. 

Doston, the word ‘audit’ will come up a few times in this episode, so let’s take a minute to see what it really means. 

Usually, an audit is an official inspection of financial accounts (hisaab-kitaab ki jaanch). Every company has an audit. Financial records are checked to see if the expenditures made are correct and there’s a mistake anywhere. Yeh toh simple procedure hai. 

But the subject of audit becomes a little different – and a lot more important when we talk about the government, and democracy at large. An independent audit of the government’s projects and financial records is actually an important way to ensure accountability (हिसाब की जिम्मेदारी) in a democracy.

The Government uses the taxpayer’s money for projects, running administration and many other functions. It is the responsibility of the government to use this money wisely. This is where the CAG comes in. The CAG does an independent audit to make sure that every rupee that is spent by the government is accounted for. 

The word independent is important here: the CAG’s office is considered to be a department independent from the Parliament and the executive wing of the government. 

And though our democracy is only about 73 years old, the idea of auditing the government’s finances is actually even older. 

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In 1858, the British crown took over the governance of India from the East India Company. The East India Company was essentially a trading business that was running our country. Now, a proper government had taken over, and many things about how India was being governed changed. One of these was the development of an auditing system. 

This was called the Indian Audit and Accounts Department. In 1858, an Accounting General of India was selected. Two years later, India had its first Auditing General. And even though we were not a democracy yet, the auditing process was still given a lot of weight. The Auditing general kept an eye on the financial workings of the government and made corrections in their performance. The present role of the CAG actually is based on this. 

The present day duties of the CAG have been adapted from the British, but if you go further back, you will find that like many other financial practices followed today, accounting and auditing was mentioned in great detail in Kautilya’s Arthashastra. It’s fascinating that even 2000 years ago, Kautilya wrote about how to divide expenditure, the role of an auditor, and the ethics of auditing. 

The Indian Accounts and Audit Department, or the IAAD, continued until independence. After India finally became free from the British, it was realized that the duties of the IAAD could be changed and developed as we needed. So after 1950, the Auditor General was called the Comptroller and Auditor General of India. Several duties were added not only during independence, but also later on as amendments and acts. The CAG was kept completely independent from the executive, legislative and judicial arms of India.

The office of the CAG as well the Indian Audit and Accounts department has developed and grown over time. Imagine: a group of officials who simply maintained and tallied financial records went on to become an institution that the government was answerable to. 

A lot of the credit for this goes to Shri Narhari Rao (नरहरी राव), who was the first CAG of India. Under a five-year scheme to strengthen the IAAD, he expanded the work force and the scope of the department.

Even when the constitution was being written, the Comptroller and Auditor General was recognized as an important role.

While discussing the role of the CAG in the constituent assembly, assembly member T.T. Krishnamachari said that, actually, the man who is the Auditor General is not an accountant per se. He must have the knowledge of the entire Indian administration. Dr. Ambedkar even said that he thinks the CAG is perhaps the most important officer in the constitution of India. 

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The Constitution has laid down the various duties of the CAG, and how they should do it. It’s difficult to say if over time, CAGs have followed the word of the constitution exactly. But over time, one thing is certain: CAGs have definitely challenged the government and its working. 

Let’s see how.

The very first and most basic duty of the CAG is to audit the finances of the centre, states and union territories. Matlab, to check if the expenditures are being made as per the guidelines of the budget; if the money being spent on projects is justified; the financial promises that the government has made — have they kept it? 

After auditing these accounts, the CAG prepares a report, which is presented to the Parliament. If the reports show any kind of inconsistencies in finances, the ministers in question then have to justify it to the parliament.

Now, what does “finances of the government” mean, really? 

The centre, states and union territories have a fund (poonji), which is a collection of its revenue from tax and non-tax incomes. Each state has a Consolidated Fund of State, and the centre’s poonji is called the Consolidated Fund of India. All sorts of tax that we, the citizens pay — income tax, corporate tax, GST, — goes into this fund. Revenue earned from licences and Public Sector Units are also added here. 

All expenditures of the State and the Central government are made from this fund, including expenses for government projects, the salaries of government employees, etc.  Apart from the consolidated funds of the state and the centre, the CAG also audits the accounts of Public Sector Units or government companies.

You could probably say that the accounts of the consolidated funds are the most important government records. The CAG audits these accounts. Here, it’s not only a question of making sure the income and expenses tally. It’s also about inspecting if the government is using the taxpayers’ money wisely. In many cases, the flaws and faults in the government’s finances are revealed only when the CAG audits these accounts. In some cases, these audits have even revealed that the government has broken laws!

Like, when this happened recently:

[We hear a news clip about the findings of the CAG report]

Hua yeh tha, ki the CAG presented an audit report of the Union government’s finances in the parliament on 23rd September. In this report, as we heard, the CAG said that the government is supposed to compensate the states with a certain amount for the losses they have incurred due to GST. The money goes to the states from the GST compensation fund. But the CAG’s report found that the government hadn’t transferred the revenue from GST into this compensation fund – instead, retained in the Consolidated Fund, and used it for other purposes. 

Accha, simple words mein kahe toh, the central government owes thousands of crores of rupees to the states — and this gap in the accounts would not have been found if the CAG report did not point it out. And not just this. The report also pointed out errors in the accounting of the GST. 

Doston, don’t get me wrong: the CAG is not an authority who can say — this was a wrong policy decision, or this policy should have been implemented differently and expect the government to follow it. The CAG can criticize the GST accounting procedure, but cannot ask the Ministry of Finance to change it. In fact, it has no say over the government’s policy decisions at all. The CAG comes into picture after policies have been implemented. If it finds that there are errors, it is the responsibility of the CAG to inform this to the Parliament — and therefore, to the public. 

It can even advise the ministries about what they should do. Then, it is up to the parliament and the ministry to decide what should be done. If any illegal activities are exposed, the courts may get involved. 

But that doesn’t mean the CAG is powerless. By auditing the accounts of the state and centre, the CAG finds out if the governments have delivered on their promises. The audit reveals not only financial gaps, but also inconsistencies in government projects on-ground.

For instance, the recent CAG report on the working of the Central Public Sector Enterprises revealed that there are several gaps in the scheme for construction of toilets in schools – under the Swacch Vidyalaya Abhiyan launched in 2014. It mentioned the findings of a survey — out of 2000 toilets constructed, one-third weren’t even working. There was no running water or cleaning arrangements. It advised the CPSE to look into this matter.

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The nation’s conscience yaani, राष्ट्र की अंतरात्मा:this is what Vinod Rai–an IAS officer and a former CAG–calls the CAG of India, in his book. And it makes sense, right? 

Vinod Rai was the CAG of India from 2008 to 2013. If you’re wondering where you’ve heard his name before, it’s probably when the 2G scam was in the news, many years ago. 

In 2010, an audit report by the CAG revealed that A. Raja, the Telecom Minister at that time, had sold 2G spectrums to telecom companies at low rates — causing the government a loss of 1.76 lakh crore!

[We hear an excerpt of an explainer about the 2G Scam]

The 2G scam shook the nation. 1.76 lakh crore — this is a huge amount. In 2011, the TIME magazine called it one of the Top 10 abuses of power of all time.

So, how did an Audit reveal such a big scam?

This is what happened — In 2008, the 2G spectrum in India was a new kind of technology, and a very limited resource. The 2G spectrum was actually a range of radio-waves that would allow telecom companies to introduce a better sound quality and cellular data into mobile phones. These companies were competing to buy the spectrum. This would be done through an auction. Those companies who won the auction would be issued a telecom licence by the government, which they would have to buy. So obviously, the licences were priced at a higher rate. 

A. Raja, the Telecom minister at the time, decided the price for these licences and sold it to the companies. 

Bas, yaha baat khatam ho gayi thi. So, when the CAG’s office had to audit these accounts, they simply had to make sure the expenditure was made correctly. 

But while doing so, Vinod Rai found that A. Raja charged these companies at the rates decided in 2001, not 2008. These were incredibly low. Even though the accounts showed no proof of any money missing, a calculation done by the CAG showed that if A. Raja had sold the spectrum at the correct rates, then the government would have earned about 1.76 lakh crore more!

The CAG also found that the spectrum was sold to telecom companies who were not qualified enough. Matlab, these did not fulfill the norms required in a telecom company to receive a licence.

To reveal a scam of this size is no easy job — it puts the CAG in the spotlight, and might even affect his job. 

But, let me tell you the other side of this story now.

In 2010, there was a lot of backlash to the CAG’s report. It was said that the reports were false and completely made up by Vinod Rai. But at that time, the CBI had found A.Raja and other ministers guilty. 

But a few years ago, this completely changed –

[We hear a news clip about the acquittal of 2G scam convicts]

In 2017, after all 19 people involved were acquitted or released, the conversation around 2G changed. Questions were raised. Did the CAG do this to overthrow the UPA government? Many public figures, including Kapil Sibal and Manish Tewari, asked Vinod Rai to apologize for his actions. Many media outlets criticized Vinod Rai and said that someone as important as CAG had made a big mistake in his calculations! 

Doston, this is the perfect example that answers today’s question: what the CAG does and why it is so controversial.

The CAG doesn’t conduct a simple Audit of accounts. Like we see in the case of the 2G spectrum and many other such examples, the CAG must inspect every small expenditure made, why it was made, whether any money could have been saved – and in this case, earned. 

The events that followed this scam explain why the role of the CAG is so controversial. He or she is trusted as an official of the constitution, who the government is accountable to. The CAG’s reports almost always point out the flaws in the government’s workings — and the ruling government naturally does not take this well. 

In the case of the 2G scam, Vinod Rai was publicly criticised and insulted. But this did not stop him. In his career as a CAG, Vinod Rai went on to reveal many other inconsistencies and big scams – the Commonwealth games scam of 2010 and the “Coal Gate” Scam of 2012. 

Clearly, auditing the government’s accounts is no small job!

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There’s another reason, doston, that the role of the CAG is linked with controversy.

Throughout this episode, did you wonder – how does a single person do so much? The CAG has an office, of course, but the final audit of the state and central governments must be done by the CAG himself. Over the years, there have been demands to make a committee instead of a single person as the CAG. The role of the CAG itself has been a topic of controversy — how it can be changed and reformed. 

In many other countries, such as the USA and Canada, each state has a separate auditor. And even for the Central government, separate agencies conduct the audit. What I’m trying to say is that the efficiency of the CAG is often brought into question. In 2011, when the CAG decided to hold a press conference to inform the public about the 2G report, the Prime Minister Manmohan Singh criticized this move. He also said that the CAG must understand that many political decisions are made in uncertainty without the facts that the CAG has. 

The methodology used by the CAG is another matter of controversy. Many times, like in the case of the 2G scam itself, the numbers in the report show a “presumptive loss”. Matlab, the loss that the CAG assumes has taken place. Many experts say that this method is incorrect. Why? Well, simply because there is no way to know if the government could really have incurred a loss of this amount. As we know, there are a lot of external factors that cannot be calculated. In the end, this number is only an assumption (anumaan).

The power that the CAG has cannot be doubted. When the CAG report declared the gaps in the GST compensation, the Ministry of Finance said that it will compensate the states in the next year. The government is answerable to the CAG — and so, it’s really important that the CAG remains independent from the government. 

However, the process to select the CAG has always been questioned. What happens is, the Prime Minister nominates a name from a shortlist, which is put together by the Finance Ministry. If the President approves of this candidate, then he or she is selected as the CAG. Now, we all know that there’s a fair chance that the Prime Minister might nominate someone who favours the ruling party. 

The process of selecting the CAG in our country is, in fact, far less transparent than other countries. For instance, in the UK, the CAG is selected by the Prime Minister and the head of Public Accounts — and then, approved by the House of Commons. In the USA, the Comptroller General is selected by the President and the Senate on the advice of a commission. 

Doston, in simple words, the role of the Comptroller and Auditor General is so controversial because it is very important. An independent and responsible audit points out the gaps in the government and holds it accountable (uttardayee). And if this responsibility falls in the wrong hands, it could do the country more harm than good. 

That’s all for today, from me! I hope we learnt a little bit more about how India runs, as always. I’ll be back next week with a brand new episode of Maha Bharat.