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Coalgate loss figure was far too conservative: ex-CAG

Jun 01, 2013 05:50 PM IST Politics Politics

New Delhi: Former Comptroller and Auditor General of India Vinod Rai spoke to CNN-IBN's Karan Thapar, in his first TV interview two, on two reports that attracted great public interest - 2G and Coalgate report.

Karan Thapar: Hello and welcome to Devil's Advocate and the first television interview with the former Comptroller and Auditor General of India, Vinod Rai. Mr Rai, you retired as the CAG last week. Looking back, are you satisfied with the way you handled your responsibilities or do you regret the controversy you attracted?

Vinod Rai: I must say I have had a very fulfilling tenure. I enjoyed the mandate that was entrusted to me. I feel reasonably confident that I have been able to fulfill the oath that I took.

Karan Thapar: What about the fact that your became an intensely controversial person in the UPA and perhaps in Congress in particular? Was that inevitable or could that relationship have been better handled?

Vinod Rai: Let's look at it this way. By definition, the auditor has a very adversarial relationship with any executive. You look at it in the private sector, you look at it in the public sector, you look at it in the government. I have sat on various boards of private companies and you will find that the auditor is always quibbling with the members of the board. If they come to an agreement, well and good, if they don't, then he qualifies the accounts.

Karan Thapar: So it was inevitable that you would clash in some sense with the government of the day?

Vinod Rai: It has happened. History speaks of so many Auditor Generals who have had differences of opinions, right from 1962.

Karan Thapar: Except, in the public eye, the relationship you had was not just awkward and difficult, it became fractious and frequently controversial. Would you accept any measure of personal responsibility for the way the relationship with the government was conducted?

Vinod Rai: Certainly not. It's very difficult to accept anything personal when you sit on a chair. I have been in Civil Services. I have done 35 years in the Civil Services. We all grow up with the chair we have occupied. And when we switch jobs, we have to be loyal to the jobs that are entrusted to us.

Karan Thapar: When the government criticised you, administrators did it in often personal terms. Was that simply because you were sitting on a chair where adversarial relationship was inevitable or was it also because there was something to do with the personality of Vinod Rai, which was like a red rag to a bull?

Vinod Rai: Certainly not. How would anybody accept that it has to do with the gentleman or the official's personality? I have worked with the government for 35 years and I think I have had a fairly good relationship with any government that I have worked with, be it in the state or the Centre. And I don't want to go into controversies of any kind, where persons or individuals have talked about...

Karan Thapar: But did the criticism you had to face in the office ever hurt?

Vinod Rai: Certainly not.

Karan Thapar: Not at all?

Vinod Rai: Certainly not. And I don't think any of that so called criticism was personal or directed to an individual.

Karan Thapar: Alright. Let's focus on the two reports that created, in a sense, the greatest public interest. First, 2G. Were you right to calculate loss on the grounds that spectrum hadn't been auctioned and therefore there had to be a loss, although one could debate the quantum, or do you now, perhaps with hindsight, accept that the government had a point when they said that revenue maximisation was not their intention and their aim was to extend services to hundreds of millions, who otherwise would never have had phones for generations to come?

Vinod Rai: I will handle the second part of your question first. Number one, revenue maximisation was not the intention at all. We talked about revenue generation. And in government schemes, in government programmes, they always tend to balance between the public benefit and the revenue generation, because the government can't be seen to be doing everything pro bono all the time. So, it's a good mix, and optimum mix of public good, and on the other side revenue generation, not revenue maximisation. If you look at the Planning Commission document, it talks about the same.

Karan Thapar: You are suggesting that the government got the mix wrong?

Vinod Rai: No, not at all. I have very clearly mentioned in our reports that policy formulation is the sole prerogative of the government. We don't get into that realm at all. But at the same time, we audit the implementation of that policy.

Karan Thapar: Except that you audited on the basis that the government said was not in fact every part of their consideration when they came up with the policy to start with. They deliberately chose not to auction. You, in fact, audited on the basis that they hadn't auctioned and came up with various figures of loss and they say in doing so, you were in fact doing an audit, not of implementation, but of the policy itself on the grounds that auction hadn't happened.

Vinod Rai: Number one, I wouldn't like to go into the merits of each of these things now that I have demitted office, but I would like to explain one thing to you, which is the first part of the earlier question you asked me. Auditors, Auditors General worldwide, in the international system for auditing, always calculate gains and losses. That's the part of the process.

Karan Thapar: So this was a worldwide practice you were following?

Vinod Rai: Hundred per cent. Let me draw a parallel. Let me explain to you, the same 3G was auctioned in the UK and the UK auditor did the audit.

Karan Thapar: Except 3G and 2G are different. 3G is meant for high-end data and 2G is for simple telephony.

Vinod Rai: But your question was whether gains or losses are calculated. Now I want to explain to you that when the UK auditor audited, he looked at it why has the government realised much more than what they had thought they would be realising. So audits are always done.

Karan Thapar: Let me not take the UK auditor as an example, let me take Indian practice instead. In India, utilities like power and water are frequently marketed for less than the market price. Food is sold cheaply through ration shops and CAGs do not come in and calculate loss. Why then, can the government not sell spectrum cheaply to facilitate phones without being accused of losing money? If one policy is right, the other can't be wrong.

Vinod Rai: Certainly not. That's why I said, it is the government's prerogative to formulate policy. Government, in their wisdom, decided to do a policy in 2008. The government, in their wisdom, decided to change the policy in 2010. We have audited both and in the process of auditing, one of the norms that we follow is to find out the sub-optimality of any policy.

Karan Thapar: Except that the sub-optimality is calculated on a basis that the government itself did not recognise. The point is that the government did not intend to auction, you calculated sub-optimality on the basis that they should have auctioned. The government's answer to you is 'you are bringing in a consideration that was alien to our policy and now you are judging our policy on an alien point of view'.

Vinod Rai: If you go into government files, what was the advice of the Finance Ministry at that point of time? What was the advice of the Prime Minister's Office at that point of time? What was the advice of the Ministry of Law and Justice? The Finance Ministry was advising that prices as fixed then were unrealistic. They needed to be pegged to the market. The PMO was advising that prices fixed in 2001 needed to be indexed.

Karan Thapar: Except in July 2008, as the Prime Minister himself has revealed, both the ministers actually read on the price and the policy that was followed and therefore presumably, the concerns that were expressed earlier and the advice that was given earlier was settled or resolved by the July 2008 decision.

Vinod Rai: No, that is July 2010 decision probably. And that was post...

Karan Thapar: July 2008.

Vinod Rai: That was post the issuance of the letters of intent.

Karan Thapar: But the pricing could still have been changed if the government had changed its position.

Vinod Rai: That's government's decision.

Karan Thapar: There's a second concern that people have with your 2G report. In calculating loss on the grounds that spectrum wasn't auctioned, you haven't borne in mind the fact that actually there was an enormous advantage, an accrual of revenue to the exchequer, first as a result of the whopping increase in the teledensity and second, because of the boost to the economic activity. Both of those, TK Arun writing in The Economic Times has calculated, could have brought in as much as Rs 1,00,000 crore of tax revenue to the government each year. If that is the case, in less than two years, your top figure of presumptive loss of Rs 1.76 crore would have been accounted for and yet that balancing calculation is not part of your report.

Vinod Rai: Number one, I don't want to comment on anybody writing in the media because lots of articles have been written. I have taken a very simple stand before the Public Accounts Committee. I have taken a simple stand before the Joint Parliamentary Committee. I have had four sittings with the JPC, where we explained everything. The models of calculation that we have taken into consideration are all explained in our report.

Karan Thapar: But I'm talking about a different thing. I am saying that what you did not do is balance your calculation of loss because spectrum wasn't auctioned with some assessment of the benefit to the economy and the exchequer in particular, a) because of the increase in teledensity and b) because of the consequent improvement of economic activity. Both of those would have brought in revenues. If you balance that accrual of revenue against the loss...

Vinod Rai: That's exactly what I am trying to point out. If you read our report, on page seven of our report, it shows very clearly that the target of the teledensity as had been decided by the government had already been achieved when the government went in for the allocation of the letters of intent in 2008.

Karan Thapar: So you are saying there was no need for the balancing?

Vinod Rai: I am not saying anything. There's a certain model of calculation that we have taken into consideration. There could have been an infinite number of models that we could have also taken into consideration. This is a viewpoint - the objective analysis made by the Auditor. There can be any number of viewpoints.

Karan Thapar: You say this is an objective analysis made by the Auditor. You are convinced in your mind that there was actually a loss. But the CBI court, on October 22, 2011, said and I quote, "In such cases, it may not be possible to determine loss or to say that loss has been caused to the exchequer". So the CBI court disagrees with the Auditor.

Vinod Rai: The courts never ever calculate losses or gains.

Karan Thapar: They say you can't even say there's been a loss.

Vinod Rai: If we pick up these statements made by a court, or by an editorial written somewhere, or by an economist making a statement somewhere or a newspaper article, you can have a very broad spectrum of viewpoints. But we, in the auditing community, have certain guidelines, certain norms that we follow, and we audit as per these guidelines and norms which we apply absolutely consistently.

Karan Thapar: That I understand. But what I am pointing out are two concerns, which many of your critics say vitiate, the conclusion of your 2G report. The first concern is that, as the CBI court says, you cannot calculate loss. Not just the quantum, you can't even say there's been a loss. So the very concept of loss, the court is saying, cannot be arrived at. The second thing that vitiates your 2G report is the claim that even if you say that there was loss because there was no auction, there is a corresponding gain to the exchequer because of the improvement in teledensity, which may have been way above what they government wanted but it still happened and because of the consequent boost to the economic activity.

Vinod Rai: Exactly what I had mentioned earlier. Each of these are viewpoints, which are not that of an auditing community. Each one of us, as I mentioned to you earlier, conducts audit as per certain norms. A very major question that arises is if we as auditors have conducted an audit, what was the quality of the audit that we did? And even in media, lots of concerns have been expressed about who audits an auditor. In India, the CAG is what generically is referred to as the "supreme audit institution". That means, just like the Supreme Court, nobody sits as an auditor above you.

Karan Thapar: You are final, but you are not necessarily correct?

Vinod Rai: But at the same time, we decided that we must get a peer review done for us, which means an Auditor General of another country...

Karan Thapar: Did you get a peer review of the 2G report?!

Vinod Rai: Hundred per cent!

Karan Thapar: And what did the peer review say?

Vinod Rai: Let me tell you that. We requested the Auditor Generals of a couple of countries, who we thought are well-equipped to do a peer review and the Auditor General of Australia constituted a team of 14 people, drawn from Australia, the UK, the US, Netherlands, Denmark and Canada and they have come up with a report, which we put up onto our website last year itself. It says they have done a peer review of all our...

Karan Thapar: And they uphold the 2G conclusion?

Vinod Rai: They have not found any fault in the auditing framework of our report.

Karan Thapar: Which also then suggests that the criticisms that I have pointing out are criticisms that don't worry you because this peer review has actually supported what you have done.

Vinod Rai: I am talking to you about the auditing community. There is no action that anybody takes, whether in government or out of government, which will not have a counter argument with it.

Karan Thapar: So you have to live with the counter arguments, you have to live with the criticism, as long as your own conscience is clear.

Vinod Rai: Please tell me a single report that we brought out, which did not have counter arguments. I think it's very good that these observations are debated in the public, because that brings about public awareness to the issue...

Karan Thapar: But the observations don't worry you and don't give you second thoughts?

Vinod Rai: Certainly not. We have made our position very clear. We have audited as per guidelines laid down by the international community.

Karan Thapar: I want to raise with you the second report that has attracted enormous attention and controversy - Coalgate. Here your report talked of a presumptive loss of Rs 1.86 lakh crore on the basis that the government had taken eight years to legislate and implement its own initial decision to auction. But that suggests to me, that what you have ended up auditing is the cost of the delay in changing the policy rather than the policy itself and the two are very different and arguably, the first is outside your remit altogether.

Vinod Rai: Let me explain one thing to you. Number one, we have not calculated presumptive losses in the report on the coal mining. Number two, we have used expressions in our report, which are drawn straight from government records. It was the then Secretary of Coal in 2004 who said that the policy or the process for allocating coal mine blocks was very opaque. It was leading to a lot of lobbying and would not be able to withstand scrutiny. He said now that prices internationally have started fluctuating very substantially, it is leading to windfall gains.

Karan Thapar: Absolutely sir, and I am not denying that. But the point that you are making... your whole report centre upon is that it took eight years between this initial advice that you need to switch to auction and the formulation of policy and legislation that permitted auction and on that basis you said windfall gains, which I call presumptive loss, of Rs 1.86 lakh crore happened. But what I am pointing out is that it is based entirely upon two things - a failure to understand that there is a time lag between the government deciding to do something and actually doing it secondly, what you have done, is audit the cost of that delay. That's not an audit of the policy, it's the audit of the cost of delay in changing the policy, which is a very different thing.

Vinod Rai: You must go into the mechanics of how it occurred. In 2004 itself, a decision was taken based on the merits of the argument that henceforth, the coal mine allocation...

Karan Thapar: Mr Rai, the decision wasn't taken in 2004. Kapil Sibal and several other minister, on this programme, have made it clear that the decision was first mooted, it was first considered, it was first being thought of by the government in 2004. The decision was only taken when Parliament passed the legislation and subsequently notified it. There was an eight-year delay. You used that eight-year delay to assume that a decision had been taken eight years earlier - it hadn't.

Vinod Rai: Mr Thapar, let me explain a very strong point about the auditing community. The auditing community does not write any sentence in its report which is not backed by what they call it a "key document". So anything that they write is based on facts and nothing but the facts.

Karan Thapar: But what is the fact that this is based upon?

Vinod Rai: The fact is that on November 1, 2004, a decision was taken in principle that yes...

Karan Thapar: "In principle"... see you are using that line.

Vinod Rai: Yes, the procedure being followed in the context then was opaque, leading to windfall gains to the allocatees and hence, now please introduce in the Cabinet the...

Karan Thapar: Mr Rai, your own language gives it away. There's a difference between a decision in principle and a decision in fact. The government decided that they needed to do something in 2004 but they only got around to doing it eight years later. Therefore, it wasn't policy. What you have done is audit the cost of the delay in the policy being changed, which is a different thing and not part of your remit.

Vinod Rai: It is 100 per cent our mandate. And just by chance, I explained it to you in the earlier part of this interview that we do not audit or get into the realm of policy formulation but we audit policy implementation and point out the sub-optimality of implementation of any policy.

Karan Thapar: Let's not quarrel on that. We leave it to the audience to decide. Let me bring up a second concern with the Coalgate report. Your figure of Rs 1.86 lakh crore has been disputed by experts. They say, first of all it assumes that coal profitability in 2011 will continue for the next 25 years and secondly your critics say that it assumes that 73 per cent of allocated coal can be mined compared to just 42 per cent in the case of Coal India mines and thirdly, the CAG didn't discount future revenue streams to get to present net value. As a result they say Rs 1.86 lakh crore is an indefensible figure.

Vinod Rai: Mr Thapar, you are quoting one article in one newspaper, which mentions these things. Why don't you please refer to some debates that have taken up not only in media but in the Public Accounts Committee where any number of articles that have appeared, any number of views have been expressed... that we have been far too conservative in our calculation.

Karan Thapar: The figure should have been higher?

Vinod Rai: We have been far too conservative in our calculations and anybody who believes... Now if you discount what happens? I will increase the price over 25 years by 10 per cent or thereabouts. I will then discount it down by 10 per cent and thereabouts. And now you will say why 10 per cent, why not 11 per cent? So we calculated Coal India's audited figures, which couldn't have been more realistic.

Karan Thapar: Let me then come to the last major criticism of the Coalgate report. The system of allocation that prevailed at the time meant that both the Centre and the states together made the allocations and as you know, both of them together were responsible for postponing and delaying the decision to auction it. You pin the blame on the Centre, not the states. And in doing so, not only have you been unfair, but it is not even truthful.

Vinod Rai: Mr Thapar it is very incorrect to say we pinned the blame on the Centre. We haven't pinned blame on anybody. All that we have done is that... You took a decision to bring in a Cabinet note, you took a decision to bring in a legislation...

Karan Thapar: Now face up the responsibility of failing to do so?

Vinod Rai: And till today, the decision that you took in 2004 has not been implemented. The legislation was introduced, was passed, the regulations have not been notified.

Karan Thapar: Let me then come to the last question of the interview. I have raised with you, what many consider, are serious concerns with the 2G and with Coalgate and people believe these concerns are so grave, they cast serious doubts on your conclusions. Do you still stand by those conclusions?

Vinod Rai: Mr Thapar, I was hoping that this interview would be more broad-based. These two reports that you have drawn attention to have been discussed enough and more, not only in media but in the PAC and the JPC as well. They will come to their own conclusions. As far as the auditors are concerned, our mandate is to conduct audit, prepare a report, place it in Parliament and then it is for Parliament to debate that. And it is being more than adequately debated in the PAC and the JPC.

Karan Thapar: Mr Rai, a pleasure talking to you.

Vinod Rai: Thank you so much.