United Nations Convention against Corruption
·
2003
·
First legally binding international
anti-corruption instrument
·
Obliges its state parties to implement a wide
and detailed range of anti-corruption measures affecting their laws,
institutions and practices
·
India ratified it in 2011
To check corruption
Institutional Changes
·
A single, empowered Lokpal needs to be
established. It should be empowered to investigate and prosecute politicians,
bureaucrats and judges.
·
While CVC and CAG are independent, they are
merely advisory bodies to the govt. They need to be strengthened. CVC can be
merged with the institution of lokpal
Major corruption cases exposed in 2010
·
Commonwealth Games
·
2G spectrum allocation
·
Adarsh Society Case, Maharashtra
·
Land Scam, Yeddurappa, Karnataka
·
LIC Housing Scam
·
Proposition: Corruption exists and is high
·
Report published by Global Financial Integrity showed that corruption, tax evasion and
trade mispricing have cost India
hundreds of billions of dollars over the past several years
o
The study pointed out that the process had
gained momentum after the opening up of the economy in 1991
Issues
·
Increasing nexus
between corporate and politics: A rise in corruption could be attributed to
this nexus. Corporates are trying to manipulate government in multiple ways to
have their way in business
Dealing with the issues
·
We need a truly independent CBI to get to the
bottom of the cases.
o
Right now, CBI seems to be manipulable by the
political masters.
o
In the 2G case, SC is directing CBI. One
possibility could be to make CBI answerable to the judiciary instead of the
executive to enhance its independence.
4th ARC report on Ethics in Governance has
recommended a large number of measures which could enhance probity among public
servants
1.
Amendment of the Prevention of Corruption Act
2.
Delegating powers to grant sanction of
prosecution to an empowered committee
3.
Fixing time limit for trial of anti-corruption
cases
4.
enhancing
powers of the CVC
5.
Repeal article 311
6.
Creating a multi-member Lokayukta
7.
Simplifying disciplinary procedures
8.
Creating mechanism which can empower citizens to
seek legal relief against fraudulent claims against the government
9.
Confiscation of property acquired by corrupt
means
10.
Ensuring accessibility and responsiveness of
government functionaries
11.
Adopting measures to protect honest civil
servants
Serious Fraud Investigation Office (SFIO)
·
Under the ministry of corporate affairs
·
For detecting and prosecuting or recommending
for prosecution white-collar crimes/frauds
Corporate corruption
·
Insider trading: Rajat Gupta, Rajaratnam
·
KG Basin: Reliance
·
Niira Radia tapes
·
Satyam
India’s Black Economy
·
In late 2010 and early 2011 there was a huge
outcry regarding India’s black economy as news about secret foreign bank
accounts of Indians started pouring in.
·
In addition, the Global Financial Integrity
Report claimed that independent India had lost $462 bn due to illegal financial
outflow
·
The government was pulled up by the SC to
disclose the names of individuals who had funds stacked away in foreign banks
·
To deal with the issue, India inked Tax Information Exchange Agreement
(TIEA) with five ‘tax-havens’ by March 2011. These are: Bahamas, Isle of Man,
British Virgin Islands, Caymen Islands and Bermuda
o
Purpose of TIEA is to promote international
cooperation in tax matters through exchange of information.
·
Wanchoo committee
o
1971
o
Estimated the size of black economy
·
Reasons for Black money
1.
Structure of taxation
2.
Price control policy
3.
Quota and license system
4.
Scarcity of commodities
5.
General election
6.
Share market
7.
Real estate
8.
International Activities
9.
Privatisation
10.
Police force
·
Impact of black money
o
May remain idle or often gets invested in
unproductive activities
o
Deprives govt of the tax revenue
·
How to curb it
o
Special courts should be established to dispose
the corruption cases
o
Pranab
Mukharjee’s five pronged approach:
joining the global crusade against black money; creating an appropriate
legislative framework; setting up institutions for dealing with illicit funds;
developing systems for implementation; and imparting skills to the manpower for
effective action
Devil’s advocate
·
Some people argue that black economy also
generates jobs and production
o
A lot of goods are bought in the market using
black incomes, and that leads to increase in production and employment
o
Black economy generates informal sector
employment and helps the poor
o
Some argue for bribes as speed money
·
There is some truth in these claims but the
costs of black economy exceed its benefits.
Counterattack for those who justify black money
·
Speed money: In order to extract a bribe, the
bureaucracy first slows down work and harasses the public. If work was
automatically done, why would anyone pay bribes?
·
The administration becomes rundown since rather
than devising ways to work efficiently, it is busy thinking of ways to make
money by setting up roadblocks to efficient functioning.
·
Much of black economy in India is like ‘digging
holes and filling them’. Activity without productivity.
·
Because of the growing black economy, policies
fail both at the macro-level and the micro-level.
·
The flight of capital lowers the employment
potential and the level of output in the economy
·
The direct
and indirect costs are of policy failures, unproductive investments, slower
development, higher inequity, environmental destruction and a lower rate of
growth of the economy
·
At the social level, the cost is a loss of faith
in society and its functioning.
Various committees on corruption
·
1956: Kaldor Report
·
1964: Santhanam Committee
·
1971: Wanchoo Committee
·
1979: Dagli Committee
·
1985: NIPFP Report
·
2002: Kelkar Committee
Movements Against Corruption
·
1972: Nav Nirman
·
2011: Anna movement
Lokpal Bill
Major differences between the Lokpal and Jan Lokpal drafts
Table 1
|
|
Jan Lokpal
|
Lokpal
|
|
Selection Panel
|
Two elected politicians, four serving judges and two independent constitutional
authorities
|
Six elected politicians (five from the ruling establishment), two
serving judges and two officials.
|
|
Search committee
|
10 members: 5 from former senior judiciary, CAG and CEC, and five to
be co-opted from the civil society
|
No such provision for accommodating the representatives from the
civil society
|
|
Investigation
|
After a preliminary enquiry the accused is associated for questioning
or interrogation as per the law – not prior hearings to share his defence or
self-incrimination. He produces his defence before the judicial courts as is
under the law.
|
Enquiry - > report to Lokpal -> hearing of the accused ->
investigation -> one more hearing before the final chargesheet.
|
Team Anna’s demands
·
Selection of the Lokpal be done by a committee
as proposed in the Jan Lokpal bill
·
Provision of Lokayuktas in the states to deal
with public servants of the state.
·
Wide jurisdiction of the Lokpal
·
Put in place a grievance redressal system
·
There were six major areas of differences between the
government and the Jan Lokapal bill
1.
Should one single Act be provided for the Lokpal
in the centre and Lokayukta in the states? Would the states be willing to accept
a draft provision for the Lokayukta on the same lines as that of the Lokpal?
2.
Should the PM be brought under the Lokpal? If
so, should there be a qualified inclusion?
3.
Should judges of the SC/HC be brought within its
purview?
4.
Should the conduct of MPs in Parliament be
brought within the purview of the Lokpal?
5.
Whether Articles
311 and 320(3)(c) of the constitution notwithstanding members of a civil
service be subject to enquiry and disciplinary action including dismissal by
the Lokpal/Lokayukta, as the case may be?
6.
What should be the definition of the Lokpal, and
should it itself exercise quasi-judicial powers also or delegate these powers
to its sub-ordinate offices?
Report of parliamentary standing committee on Lokpal
·
Recommended
o
Exclusion of lower bureaucracy from purview of
Lokpal
o
Parliament to decide whether PM should be
included
o
Group C and D officers should be covered by the
respective state Lokayuktas or by the CVC at the central level
Role of CAG
Following cases of scam were brought forth recently by CAG
·
2G spectrum
·
CWG
·
Reliance KG Basin
In order to make the institution of CAG more robust, it has
proposed the following amendments to the Audit
Act 1971:
·
Amendment to ensure that the government
departments reply to audit enquiries in 30 days rather than in the open-ended
manner as of now.
·
CAG wants the statute to stipulate a clear
timeframe for the tabling of completed audit reports on the floor of the
relevant legislature.
·
Bringing the CAG’s legal mandate up to speed
with the changes that have taken place in the way public money is spent. Because
of ambiguities in its mandate the CAG feels unable to adequately audit all areas
of public economic activity. rd
and 74
th amendment,
public-private partnerships after liberalisation>
·
Adapt audit approach to keep pace with the
latest fiscal developments.
·
Types of audit
o
Regulatory Audit: CAG’s current function.
Auditing whether the money used was legally available and spent through the
right authority.
o
Performance Audit: looking at the economy and
appropriateness of spending. Could the spending be done in a more efficient
manner to get the maximum returns out of the expenditure?
·
Good opportunity for CAG to have a proactive
role in many areas including:
o
Poor implementation of the FRBM Act 2003 and
obsession with showing achievement of quantitative budget deficit with the help
of revenue buoyancy and one time receipt like spectrum auction
o
13th finance commission has suggested
a review mechanism to be set up for evaluating the fiscal reform problems. CAG
can contribute valuable inputs for this reform process.
o
Output and outcome budgeting: Need to move from
the former to the latter. CAG can do some case studies of output/outcome
budgeting and focus on the system defects for corrective action. Introduction
of management accounting was one of the goals when audit was separated from
accounts in 1976. This is still a paper goal and accounts are still considered
by the ministries as a statutory nuisance.
·
Some examples of lack of transparency in
government finances
o
Govt’s contingent liabilities shown in the
budget document do not indicate the default position of the borrowers.
o
The figures of fiscal deficits need more
amplification. Quasi-fiscal deficit should be explicitly stated. Many cases of
understatement of expenditure are noticeable. For example, oil subsidies do not
reflect the full annual subsidy payable by the government.
150 Years of CAG in 2010
An evaluation
·
1860
·
The findings of Audit should not only be
reported to the President and Parliament as close to the events as possible,
but also made known simultaneously to the media and public, with some
explanations to aid understanding
·
Several reports of the CAG have matters that
have not been discussed. A way should be devised so that CAG reports are more
effectively discussed
·
There is a criticism of overreach when Audit
widens its horizons and attempts to examine efficiency or cost-effectiveness or
propriety. The criticism is untenable because any meaningful audit must
necessarily go into these aspects, and the supreme audit institutions of many
countries do as a matter of course.
·
When faced with executive intransigence, the CAG
does not have enough powers to compel cooperation. The CAG needs to take a lead
in using the relevant constitutional provisions to make the institution
stronger
·
The process of selection of such an important
constitutional functionary should be open, objective and credible.
Beyond the spectrum
The enormity and
complexity of government budget throw a special burden on CAG
The Comptroller and Auditor General of India (CAG)
has been in limelight recently for his report on the irregularities and loss of
revenue to the Central Exchequer in allotment of spectrum licences. Public
awareness and appreciation of the role of CAG, especially in the media, is to
be welcomed.
As the supreme auditor of the government, it is his
responsibility to check that collection of revenue and spending of public money
is done properly according to rules and regulations. It is a creditable
achievement to unravel all the ramifications of this complex transaction and
bring out a comprehensive report without fear or favour. This is time to recognise the
wider role CAG can play in the larger context of economic development and
fiscal consolidation.
On behalf of Parliament and the public, CAG is responsible
to check that public revenue is collected and public expenditure is incurred in
the most efficient and lawful manner. India is a welfare state and the
government is implementing a number of schemes and projects under the five-year
plans, resorting to borrowing. The enormity and complexity of government budget throws a special
burden on CAG. The budget estimate of revenue receipts for the current
year is Rs.6.80 lakh crore and total expenditure Rs.11 lakh crore financed
through substantial borrowing. The CAG's role extends to see that the budget is
implemented to achieve the government's objective of promoting development with
fiscal prudence. Two areas for such non-routine audit can be identified — ouput/outcome budget and fiscal
responsibility legislation.
One major factor in public expenditure of a modern
welfare state is the wide range and complexity of functions, schemes and
projects undertaken by the government to promote all inclusive economic growth.
This has altered the budget formulation in a significant way. The budget is no
longer a mere financial budget. Now the emphasis is on what is expected from
the large scale spending. Efficiency and effectiveness became the key words.
The physical output from the financial input is reflected in the budget. The
country has followed this world-wide trend by introducing budgetary reforms.
The annual performance budget was introduced to highlight financial and
physical aspects of major schemes and programmes of all ministries dealing with
development activities. Even after 25 years, this did not bring any significant
improvement in efficiency and effectiveness in public expenditure. Presenting
the Central budget for 2005-06, the then Finance Minister announced putting in
place a mechanism to measure the development outcomes of all major programmes
to ensure that “programmes and schemes are not allowed to continue from one
Plan period to another without an independent and in-depth evaluation.''
Outcome budget
The output/outcome budget is a complex task. It
involves the following criteria.
Defining and measuring the output and the outcome
from expenditure.
The output refers to physical measure of production
and the outcomes deal with the effect of the policy and impact (Example: assets
from expenditure on irrigation projects are dams and canals and the outcome is
the increase in crop production and the efficient use of water. School and
hospital buildings are the assets to be completed within timeframe and cost
estimates, but the outcome is the quality of education and medical care).
Realistic cost assumptions to link financial budget
provision with targeted output/outcome;
Designing a suitable system of financial and
physical data;
System for internal check, monitoring and
corrective action when needed; and
Presenting an annual analytical statement —
comparing the actual financial and physical performance with that of budget
estimates and targets.
If the new outcome budget is to fare better than
the earlier performance budget and become a practical management tool, a
special CAG audit of a few select cases will throw up the problems in adhering
to the criteria mentioned above and any system weakness.
Omission of substantial non-Plan expenditure such
as operation of schools, hospitals, irrigation projects from the output/outcome
budget is a major flaw.
Expenditure on public private partnership (PPP) and
direct transfer of funds to non-government bodies do not come under this
output/outcome discipline. CAG can marshal data to draw attention to this
lacuna in expenditure management.
Fiscal prudence
Another important subject for the audit scanner is
action or rather non-action to inculcate fiscal prudence in government
expenditure. A historic landmark in fiscal history is the enactment of the
Fiscal Responsibility and Budget Management (FRBM) Act, 2003, by Parliament. It
prescribes targets and ceilings for the budget deficits and thereby borrowings
by government to finance expenditure. This is a commendable and timely
legislation to control spending on non-priority and non-productive areas by
taking loans. It also calls for a long-term view of fiscal prudence and
sustainable public debt through Medium Term Fiscal Plan (MTFP) beyond the
annual budget. But the implementation of this Act suffers from serious defects.
Achievement of quantitative deficit targets is taken an end in itself and not
as a means for achieving fiscal prudence. Deficit management has been done with
the help of buoyancy in revenue, especially through disinvestment and revenue
from spectrum auctions, off budget items and other means. Reform in expenditure
policy and management has been put on the backburner. The MTFP presented with
the annual budget is not supported by disaggregated data on revenue and
expenditure projections and the underlying assumptions. There is no road map
based on identification of the numerous specific problems in budget
formulation, revenue mobilisation and expenditure policy and implementation
with a time-bound action plan. An in-depth special audit by CAG of the
implementation of the FRBM Act will be timely. CAG has the power and access to
data for doing this. The Comptroller and Auditor General can recruit any
technical staff needed for this non-routine audit (already an officer of Indian
Economic Service has been taken on deputation). If this audit is done with a
proper perspective, it can dispel the mistaken negative impression of audit as
only a fault finder of individual irregularities.
