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The Rulers' indifference towards CAG reflects Policy Paralysis

DECRMBER 25, 2017

By Naresh Minocha, Consulting Editor

POLICY Paralysis (PP) was one of the catch phrases that enabled BJP-led NDA to defeat Congress-led UPA in 2014 Lok Sabha polls. Has PP ended?

The answer is both Yes and No. Yes because there has been modest increase in policy decisions taken by NDA. Couple this with terrific marketing of repackaged schemes and policies. NDA's performance is slightly better than UPA's.

And no because Comptroller and Auditor General (CAG) reports, presented during the winter session and earlier, show that bad governance continues to rock as it did under the UPA. Certain indicators, in fact, imply that misgovernance has risen under the Modi Government.

Anyone can arrive at this conclusion by comparing the observations, conclusions and recommendations made by CAG every year in its reports on different ministries. Three years is adequate period to judge ruling alliance's passion or aversion for policy paralysis.

If continuation of same errors, same indifference, same revenue leakages, same fiscal opacity and same deficiencies under NDA is not policy paralysis, then what it is?

Government's inability to reform its functioning in the light of quality audit by CAG is worrying. The persisting PP should attract the attention of Prime Minister Narendra Modi. He himself had once cited CAG reports in Lok Sabha to articulate governance deficiencies in previous Government. PM also suggested that MPs should do research to enrich debates in Parliament. The best way to do research on governance is study official record including CAG reports.

The Nation would be grateful to PM if he facilitates discussion on identical or similar observations and conclusions made in latest CAG reports and previous ones. Should he not hold some ministers and officials for indifference towards CAG reports?

For the sake of ease of doing research, we can take up CAG report on ‘Union Government Accounts of the Union Government No. 44 of 2017 (Financial Audit)'that was released on 19th December 2017. Compare its content with the observations and conclusions made in CAG report on same subject for the previous year.

The latest report says: "Opaqueness was noticed in 35 Major Heads relating to expenditure and receipts wherein more than 50 per cent of total expenditure and receipts under these heads were recorded under minor head 800-Other Expenditure/Other Receipts".

The previous year's report says: "Opaqueness was noticed in 32 receipts and expenditure Major Heads wherein more than 50 per cent of total expenditure and receipts were recorded under minor head 800-Other Expenditure/Other Receipts".

See fiscal opacity has increased under Modi Government in spite of CAG's sage observations!

Anyone can see stark similarity in CAG's findings on other accounting heads such as Secondary and Higher Education Cess (SHEC). The latest report says: "The Secondary and Higher Education Cess (SHEC) was introduced in the Finance Act, 2007, to fulfill the commitment of secondary and higher education. Scrutiny of the Union Finance Accounts for the period 2006-07 to 2016-17 revealed that a total collection of SHEC of Rs 83,497 crore has been made and is being credited in the CFI (Consolidated Fund of India) without creating any reserve fund in Public Account".

The Report continues: "Unlike the creation of Prarambhik Siksha Kosh in the case of primary/elementary education cess, for the SHEC neither a Fund was designated to deposit the proceeds of SHEC nor were schemes identified on which the cess proceeds were to be spent. Consequently, the commitment of furthering Secondary and Higher Education Cess as envisaged in the Finance Act was not transparently ascertainable".

The report adds: "The matter of non-creation of Fund and non-identification of schemes was raised in previous years' Report but the trend is persistent".

How is it that identical/similar observations in previous year's report didn't perturb Modi Government, which came to power on promise of good governance?

Consider now National Clean Energy Fund (NCEF). CAG has made similar observations in the reports for both the years. The reports show that the shortfall in transfer of cess to "earmarked fund" has increased to 71.31% in 2016-17 from 67.62 per cent in preceding year.

The latest report concludes: There are significant deficiencies relating to disclosures, accuracy, completeness, and transparency in the Union Finance Accounts for 2016-17. Many of these discrepancies are recurring without any noticeable corrective actions taken by the concerned accounting authorities though commented upon in previous Audit Reports. Several Regulatory Bodies acting as ‘State' within the meaning of the Constitution of India, maintained large amount of funds outside the Government Accounts. Specific purpose cess being collected was not credited to the earmarked funds whenever created in the Public Account".

One can read the same conclusion verbatim in last year's CAG report on ‘Union Government Accounts of the Union Government No. 34 of 2016 (Financial Audit)' presented on 16th December 2016.

Yet another indicator of worsening policy paralysis is the increase in unutilized external debt, which has increased from Rs 216,083 in 2013-14(last year of UPA regime) to Rs 254,779 crore in 2016-17. The commitment charges on the unutiized aid has increased from Rs 117.33 crore to Rs 121.81 crore during the same period.

Referring to record payment of commitment charge in 2016-17, CAG notes: "This points towards continued inadequate planning, resulting in avoidable expenditure on commitment charges".

There are several more cases of similarity in CAG's observations in two reports.

Turn now to CAG report on ‘Union Government Department of Revenue – Direct Taxes Report No. 40 of 2017' presented to Parliament on 19th December 2017.

Referring to "persistent and pervasive irregularities in respect of corporation tax and income tax assessments cases over the years," the report says: "Recurrence of such irregularities, despite being pointed out repeatedly in the earlier Audit Reports points to structural weaknesses on the part of Department as well as the absence of appropriate institutional mechanisms to address this".

According to the Report, "The arrears of demand increased from Rs 8.2 lakh crore in FY 2015-16 to Rs 10.4 lakh crore in FY 2016-17. The Department indicated that more than 98.6 per cent of uncollected demand would be difficult to recover".

If there is no policy paralysis, then why and how have overdue taxes risen? Why have arrears of demand not been brought down or written off?

To conclude, Modi Government should end policy paralysis as judged from its indifference towards CAG reports. It should treat CAG reports as stepping stones to good governance.


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