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By M.V.Ramakrishnan

Sunday, September 10, 2017

The Dispassionate Mission Of The Comptroller & Auditor-General Of India

The three vintage essays on the attitudes, environment and quality of government audit which I had recalled in the three preceding posts were written just after my column 'India of C-A-G' in THE HINDU had completed its first year of successful publication.  Let me now share with you a couple of historically significant essays I had written a year earlier, as an overture to this unprecedented (and subsequently unmatched) column in Indian journalism. 
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Glossary & annotations


C-A-G  --  Comptroller & Auditor-General of India, an independent authority under the Constitution of India.

Karmayogi  --  In Sanskrit, India's ancient /classical language, Karma in a narrow sense means work or action, but in a wider sense denotes the individual's social, spiritual and moral obligations (and has other deeper connotations also).  Yoga means, among other things, a spiritual exercise, and Yogi is one who intensely practices Yoga.  Thus, a Karmayogi is a person who goes on performing his or her duties with absolute detachment, neither aspiring for rewards nor being discouraged by failure.   (Karmayoga and the Stoic philosophy have much in common, though the concepts are not identical.  Yes, the Roman Emperor Marcus Aurelius Antoninus was certainly a Karmayogi).  

Bofors affair  --  A long-drawn-out and inconclusive probe by the Central Bureau of Investigation (CBI) into the Indian Army's purchase of anti-aircraft guns from the Swedish firm Bofors.

Parliament  --  Independent India's Parliament broadly follows the British model,  with two Houses :  Lok Sabha (People's Assembly) and Rajya Sabha (National Assembly, with State-wise representation).    

The Capital  --  New Delhi, in North India.

Yamuna  --  One of India's major rivers, which borders the Capital as well as Old Delhi, with ever-expanding suburbs on the other side. 

Bahadurshah Zafar Marg  --  A busy thoroughfare named after a 19th-century Muslim monarch, where some leading English-language newspapers have their editorial offices (and referred to sometimes as the Fleet Street of New Delhi).

PAC and COPU  --  Public Accounts Committee, and Committee on Public Undertakings :  panels in Lok Sabha, with the Chairmen usually belonging to the Opposition.  There are corresponding bodies in the Legislative Assemblies in the States.

Governors  --  The nominal head of each of the 2-dozen+ States in India is the Governor, a Constitutional authority appointed by the President of India.  Real executive power rests with the Chief Minister, who belongs to the party winning the elections (just like the Prime Minister at the Center).
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THE HINDU
Business Review

10 November 1995

India of C-A-G

The C-A-G is a Karmayogi


This article marks the beginning of a new column which will observe the public financial administration in the country through the periscope of the Comptroller and Auditor-General of India, and will also review related issues.  The author was an officer of the Indian Audit & Accounts Service from 1957 to 1992.  He has since then worked as a full-time consultant to the CAG (1992-93) and the Press Trust of India (1993-94).

*

"And how'z the cag?" asked a friend of mine who is a business executive, at a dinner party in New Delhi a few years ago.  For a split second I couldn't follow what he was saying.  A blank look must have flashed across my face, for he quickly added:  "I mean . . .  your boss!".  He was,of course, referring to Mr. T.N. Chaturvedi, Comptroller and Auditor-General of India, whose Special Report on the Bofors gun deal was making him quite famous at that time.
I had been an officer of the Indian Audit & Accounts Service (IAAS) for  more than 30 years by then, but I had never before heard anyone inside or outside the Government referring to the CAG of India as 'cag' -- rhyming with bag, lag, rag or tag.  In the bureaucratic and legislative circles both at the Center and in the States, he was always called C-A-G (pronounced see-ay-jee) or C-and-A-G.   The general public rarely used to think of him, and many well-educated persons hardly knew anything about the institution of the CAG. 

The Bofors affair did greatly increase the public awareness of his existence, and even led some clever fellow to coin the amusing expression 'cag in the wheel'.  However, it is not easy to dispel the mist surrounding the public image of the CAG, and there is still widespread ignorance in the country about his stature, role, powers and responsibilities as defined by the Constitution of India and a relevant Act of Parliament.   

CAG and AGCR


An interesting story which was circulating among the IAAS officers in the Capital some 20 years ago would illustrate this point well.  The CAG's office is not far away from the office of the former Accountant-General (Central Revenues), now called the Director of Audit (CR).  This senior officer of the CAG occupies an imposing office building near the banks of the Yamuna, opposite the headquarters of the Income Tax Department.

There used to be an enormous colored bas-relief sign 'AGCR' on the facade of this building, and it is still there.  The crowded bus-stops on both sides of the wide road are popularly known as 'ITO' and 'AGCR' even today, and the place is an important and well-known landmark in the city.  The offices of the CAG and the AG[DA]CR are both located within walking distance of a busy traffic junction on Bahadurshah Zafar Marg, the Fleet Street of New Delhi ;  but the CAG's office, like the University Grants Commission, is tucked away neatly on a short crescent road nearby and is not very conspicuous.

It seems Mr. A. Baksi, who was the CAG in the mid-Seventies, was fond of driving to the office and back home in his own car sometimes, preferring it now and then to the exclusive chauffeur-driven official vehicle provided for him.  The story went that he was stopped one evening by a policeman at the intersection for some minor traffic offense.  "Where do you work?" the policeman  asked him.  "In the C-A-G's office," Mr. Baksi replied.  "Oh?  And in which Department is that?" queried the policeman sarcastically.  At this stage a bright idea occurred to the CAG.  "Look, I am a senior officer of the AGCR's Department!" he declared.  At once the constable snapped to attention and saluted respectfully.  "Sorry, Sir!  You may go!"  he said, and waved the boss away.

None of us who helped to spread this story round in the Service knew whether it was true or not, but that hardly mattered.  It might well have been invented by Mr. Baksi himself on some hilarious occasion!  The important thing was that it was meant to underline the relative anonimity of the Comptroller and Auditor-General of India those days.  In fact, even today the CAG is far from being a familiar public figure in New Delhi.  If such is the case in the Capital, one can well imagine the extent to which ordinary people elsewhere must be ignorant about his activities and mission.

Glamor and restraint


Obviously the celebrity status and glamor achieved in the late Eighties had belonged to Mr. Chaturvedi personally, and not to the institution of the CAG.  Moreover, it had materialized mainly by chance, and not on account of any design or unusual action of the CAG.  After all, he had no choice but to investigate a certain massive Government transaction which had already become the subject of furious controversy and speculation in the national Press, and he could hardly have avoided the extraordinary publicity received by his own report on it. 
Mr. C.G. Somiah, who succeeded Mr. Chaturvedi as CAG in 1990, has not so far found himself in any situation which would compel him to step into the glaring limelight, although it nearly happened in a certain case which need not perhaps be discussed here.  He has been quietly able to continue the very long tradition of restraint, which expects the CAG to remain strictly within the shade of the prescribed procedures and to function as an almost invisible force governing financial discipline in public administration. 

Of course, external conditions are no longer the same as they were in the past ;  and with the increasing interest shown by the Press in the CAG's Audit Reports, he is not likely to be able hereafter to avoid publicity completely.  Moreover, the tradition of restraint rests on the fundamental assumption that not only the CAG but all other authorities concerned would also be diligently performing their respective duties under the Constitution, and honoring their obligations as specified by the relevant rules and procedures.  Who are these authorities, and do they all perform their tasks satisfactorily?  The true answer to these questions would reveal some startling facts.

PAC and COPU


The CAG is totally independent of the Government, and is answerable only to the people of India ;  and the expression 'people' means Parliament, of  course.  His main responsibility to the people is fulfilled when he submits his Audit Reports to the President of India and the Governors, for placing them before Parliament and the State legislatures respectively.  By the way, the CAG has some accounting functions also, which I shall explain on some other occasion.

The Audit Reports on government departments and autonomous bodies are required to be processed further by the Public Accounts Committee (PAC) of Parliament (Lok Sabha) or the respective State Legislative Assembly.  The Audit Reports on public-sector undertakings are to be similarly taken up by the Committee On Public Undertakings (COPU), which exists in Parliament and most of the State legislatures.  In a few small States where there is no COPU, the PAC is responsible for this also.

The PAC and COPU are expected to study the contents of the Audit Reports, consider the Government's explanations, discuss selected issues with senior Government officers or other witnesses, and make recommendations to the House.  The Government must submit notes on the action taken, for further consideration by the Committees.  This is the only Constitutional manner in which the CAG can hold the Government accountable to the people.  Of course, the public is free to read his Audit Reports, which are priced publications.

Question and answer


In the given organizational set-up, therefore, even if the CAG produces some excellent Audit Reports, their effectiveness would depend substantially on the response of the Central and State Governments, and the expeditious functioning of the Committees in Parliament or the State legislatures.  So then, how do the Governments respond normally, and how do the Committees perform?

The answer is that there is actually a wide gap between expectations and performance.  Things are not too bad at the Center, where the PAC and COPU have been fairly active.  They call for the Government's explanation in every case featured in the Audit Reports, and they also try to keep their work current by adopting a highly selective approach for holding discussions and examining witnesses.  Consequently the officers of the Central Government tend to be fairly alert in taking follow-up action on the Audit Reports, and in answering audit queries and comments preceding the inclusion of any material in the Audit Reports.
In the case of the States, however, things have traditionally been much worse.  In general, not only has the State Governments' follow-up action on the Audit Reports been extremely poor, but even their response to the initial audit queries and overtures has been very unsatisfactory.  Such gross indifference is probably a consequence of the fact that the PAC and COPU in the States have generally been slack in scrutinizing and discussing the contents of the Audit Reports.

In most of the States there has been no selective approach in regard to discussion, and many voluminous Audit Reports have been carried forward to subsequent years and accumulated as progressive arrears of  business.  Old cases are sometimes taken up for discussion so late that the proceedings do not serve any useful purpose.

Struggle and survival


The volume and range of the CAG's outputs are formidable.  On an average he issues about a hundred Audit Reports every year on the various government departments, autonomous bodies and public-sector undertakings.  All the voluminous activity leading to these finished products is undertaken by a vast network of the CAG's organization, which is spread out all over India and employs more than 60,000 persons. 

How frustrating it must have been to successive CAGs that all these strenuous efforts usually seem to be leading nowhere in the States, and perhaps only upto a short distance at the Center!  And yet none of them has ever been unduly discouraged by this distressing state of affairs which has existed for a long time.

Normally there has been no slackening of the trouble taken to keep things moving.  Backlogs do tend to develop now and then in the preparation of audit reports ;  but time and again the arrears are caught up with, and the tempo restored to normal levels.  There have been ups and downs in the CAG's own performance, but never any serious setback. 

Moreover, successive CAGs have been performing their Constitutional duties in a remarkably detached manner, fully conscious of the fact that the immediate impact of their contributions would perhaps be negligible.  By pressing on with their mission relentlessly, however, they have not only managed to maintain the instrument of Audit Report in good  working order, but have also progressively developed better methods of  auditing and presentation.  The struggle is still going on -- no doubt in hopeful anticipation of better times to come -- and it is not likely to be given up easily. 

Indeed, if and when things do improve all round and the Governments and Legislatures begin to take their statutory obligations more seriously -- as they must surely do sooner or later -- there will certainly be a steady stream of fresh Audit Reports rolling out of the CAG's durable assembly line.

On the other hand, if the CAG had ever allowed any demoralization to grow within his own organization, there might be no consistent production of Audit Reports today and tomorrow, and the whole system of Parliamentary financial control might have been seriously damaged.  In the light of the various facts mentioned above, would it be an exaggeration to say that the system owes its very survival so far mainly to the Karmayoga performed by the C-A-G of India?


                                              Next :  The mills of the C-A-G

Monday, August 21, 2017

Effective Audit Of Quality Calls For Excellent Quality Of Audit

ATTTUDES OF AUDIT . . .  ENVIRONMENT OF AUDIT . . .  QUALITY OF AUDIT . . .  Here's the last one of a set of three essays I wrote long ago on the character of Government audit practices in India  --  (please see the preceding posts for the other two)..

By the way, these were by no means the last words on the topic!  There were several other articles exploring those concepts directly or indirectly, in my column India of C-A-G  (1994-99) in the prestigious Indian newspaper, THE HINDU. 

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Glossary & annotations

CAG (pronounced C-A-G)  --  Comptroller & Auditor-General of India, an independent audit authority, under the Constitution of India. 

Ahmedabad/Gujarat  --  Ahmedabad is the largest city in Gujarat, a major State on India's West coast.
Bombay  --  Anglicized name of the Capital of Maharashtra, a major coastal State adjoining Gujarat. (Now called Mumbai, its native name).

Indian Civil Service  --  In the colonial era, the top bureaucrats of the administration originally were British citizens belonging to the Indian Civil Service.  Progressively a few Indians were also enlisted in the ICS, conferring a glamorous status on them both in official and social circles. 

The Capital  --  New Delhi, in North India.

HQ  --  Headquarters.

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THE HINDU
7 February 1996


The quality of audit

Quality is a relative term.  Expressions like 'good', 'bad', 'better' and 'worse' all mean different things to different people, at different times or in different situations, whether it concerns the quality of a product, service or  performance.  It all depends on the standards by which one judges at any given time and place.  Obviously, the quality of the standards themselves is a relative thing, depending on who specifies them and how.  Thus, quality is always subject to different interpretations by different persons at different times and in different contexts.

Nevertheless, over a long period it is possible to evolve certain fundamental and widely-accepted norms by which to judge quality and to discern trends of improvement or deterioration, although it must be noted that even when quality shows a distinct improvement in the long run, there are bound to be ups and downs in the relative excellence in the short run.

Quality and constraints
This rule is universally valid, and the performance of the Comptroller & Auditor-General of India is no exception. The quality of his audit of government transactions has shown a progressive and remarkable improvement during the past three decades, well matching the spectacular expansion in the activities of various departments and organizations of the Union and State Governments.

The CAG's Audit Reports have been increasingly concerned with impartially critical evaluations of overall performance -- and, wherever possible, even of policy -- although they do mention many irregularities in isolation.  Successive CAGs have always been conscious of the need to achieve better results all the time, as can be seen from their observations not only in internal forums within their own organizations but in international audit conferences  as well.    

The preparation of the CAG's Audit Reports is an elaborate process which tends to take considerable time.  Major audit investigations often confront stubborn resistance from government officials in the field and in the Secretariat, and overcoming such resistance and gaining access to all relevant information is usually a time-consuming process.   

Further, it is an axiom in the Audit Code that the point of view of the Executive must be ascertained and considered earnestly before any comment is made in the Audit Report -- unless, of course, the other side refuses to respond to the auditors' queries and overtures (which is often the case in the States).  Usually much time needs to be allowed for these efforts also, even if there is eventually no response.  In any case the CAG has to line up indisputable evidence before he includes any information in his Reports.

The CAG's audit is naturally a retrospective exercise, always covering past events and transactions.  Obviously, with the procedures and safeguards also taking their toll in terms of time, the Audit Reports do often tend to raise issues which appear to be rather old.

Successive CAGs and their officers in the field have always been conscious of this inherent problem, and have constantly tried to expedite the whole exercise.  And in that process, they have often had to sacrifice quality.  Let me give you an interesting example from my own experience as a former officer of the Indian Audit & Accounts Service

Speed vs. substance

In the mid-Sixties I was working in Ahmedabad as a Deputy Accountant-General in charge of administration in the office of the Accountant-General, Gujarat.  The AG, Mr. P.Y. Godbole, was a dynamic and impatient officer who wanted to get everything done fast.  We used to refer to him as 'Mr. Speedbole' behind his back :  and I believe he knew it and liked it.

Those days the consolidated material relating to the State Audit Reports pertaining to a particular financial year (April-March) used to be sent to the CAG's office in the Capital after a whole year or even later. Thus the first draft of an Audit Report for say 1962-63 would reach the HQ only some time in 1964.  Editing by the HQ and getting the report printed by the Government press would take their own time, and it would be presented to the Legislative Assembly in late 1964 or even in 1965.

Now, Mr. Godbole resolved to accelerate the whole process in such a way that  the material for the Gujarat Report for 1965-66 (April-March) would reach the HQ before the end of December 1966.  If he succeeded, he would be the first AG ever to do so, and he was determined to achieve the distinction.

As I was looking after the administration, I was not directly concerned with the actual field work and the scrutiny of the results in the main office.  But I was a constant and captive witness to the extraordinary degree of pressure which the AG imposed on the officers conducting audit inspections, and on the Reports section in the office which was directly supervised by him.

It so happened that he did accomplish the mission, and the Draft Audit Report was ready for dispatch to the CAG's office on December 30.  As it would reach the HQ only in the New Year if sent by post, the AG issued an unprecedented sanction for the Audit Officer (Reports) to fly to New Delhi and deliver the goods in time.  So emotionally involved was Mr. Godbole with this adventure that he even took the astonishing step of going to the airport to see the AO (Reports) off! 

But what was the quality of that Audit Report?  It was a different story altogether.  Some of the material was incredibly trivial --  for example, there was a paragraph accusing the State Government of not salvaging the welcome banners used for decorating the streets during the visit of a high foreign dignitary to the State!

Mr. Godbole was subsequently transferred to Bombay, and was succeeded by a level-headed officer called K.C. Jain.  Next year Mr. Jain had to be absent on leave on the days the Public Accounts Committee of the State Legislature was meeting to consider the last Audit Report processed by his predecessor;  so he nominated me to represent him in that forum. giving me full freedom to depend on my own judgement. 

I recall agreeing to drop nearly all the audit objections which were discussed in the meeting  -- which attracted a grateful compliment from the Chief Secretary of the State Government (Mr. Gidwani of the Indian Civil Service) who was present!  And when I told the AG about what I had done, he was greatly concerned and tightened up the quality controls.

Quality and logic

To be sure, the above example did constitute an extreme case, and I mention it only because it is so amusing.  But many less hilarious instances can be cited where the auditors' attempts to adopt short-cuts in their anxiety to expedite things had led to very insubstantial issues being raised.
But over a period, many useful procedures have been devised by the CAG to accelerate the pace of audit without sacrificing quality.

For instance, it is now a standard practice for the field offices to send a continuous stream of draft material to the HQ in small batches at short intervals throughout the year, to be consolidated in the end -- usually well before the following December.

Admittedly some Audit Reports do still get delayed, especially at the stage of printing by the State Governments. 

But the main challenge faced by the CAG in recent years has not been posed by the risk of featuring dated material in the Audit Reports, but the need to ensure absolute logic in the conclusions drawn by him from the extremely massive information gathered in the course of audit inspections and investigations.

So voluminous is the audit activity today that the officers in the field do sometimes tend to feel overwhelmed, and the consequent tension often leads to logical flaws in the material processed.
The HQ has to be ever vigilant and must guard against this, and there has been a conscious effort to enforce superior standards of logic and presentation.  The CAG's quest for excellence, apparently, is a never-ending exercise!

It is necessary that Audit Reports continue to mention many routine points, so that minor irregularities do not go unnoticed and snowball into major losses ;  but the accent today is clearly on performance reviews.

Either way, what Audit is vitally concerned with is the overall quality of the Executive's functioning.  In the CAG's scheme of things, one might say, the quality of audit is ultimately a question of the audit of quality.

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PostScript, 2017

Clever but not clear!

When recalling the essays, reviews and satirical sketches I had written 20, 30, or even 50 years ago as a journalist, I am not usually tempted to wish I had written something in a different way.  Of course, there are exceptions to this rule, and here is one of them!  Reading this text carefully now, I get the impression that the last sentence sounds rather clever, but lacks clarity.-- ironically so, because it so closely follows an earnest reflection on the importance of logic!  I do wish I had written:-


Either way, what Audit is vitally concerned with is the overall quality of the Executive's functioning.  In the CAG's scheme of things, one might say, effective audit of quality invariably calls for excellent quality of audit.

Friday, August 18, 2017

Progressive Government Audit Practices, From Simple To Substantial And Sophisticated

In the preceding post, I had recalled an essay about the attitudes of Government auditors, which I had written in 1995 in my column India of C-A-G in THE HINDU.  It has stood the test of time well and seems to have considerable historic merit.  I had quickly followed up that article with a couple of others, on the environment and quality of audit and the evolution of refined Government audit practices in post-colonial, democratic India.  So here's the next text :-
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Glossary & Annotations


CAG  (pronounced C-A-G)  --  Comptroller & Auditor-General of India.

British regime  --  19th/20th centuries (upto 1947).

SANCTIONS  --  In the Govt. set-up in India, 'sanction' means Govt.'s approval of a specific item of expenditure (on staff. equipment, etc.), entitlements (leave, loans, etc.), or projects, specifying levels or limits of funds provided (buildings, roads, development/welfare schemes, etc.).

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THE HINDU
10 January 1996


India of C-A-G

The environment of audit

As briefly mentioned in the preceding article (December 27), there has been a metamorphosis in the whole environment of Government audit in the past 30 years or so.  This was not caused by any sudden change in the attitude of the auditors, but has been the result of a progressive widening of their functions and a gradual but fundamental shift in their perception and outlook.


And this trend has materialized along lines parallel to the remarkable expansion in the Government's activities at the national and State levels in independent India.  When the Government had concerned itself mostly with routine tasks (as in the British regime), there was not much scope for Audit to undertake any substantial reviews of performance or systems :  but with the profuse growth of the Government's concerns, the audit activities also grew significantly in terms of volume, scope and quality.  

The increase in volume was a routine development.  The area-wise expansion of scope was marked by the introduction of revenue audit and public-sector audit when Mr. A.K. Roy was the Comptroller & Auditor-General of India in the early Sixties.  These new functions were consolidated by his successor, Mr. S. Ranganathan.  And it was during the tenure of Mr. A. Baksi for six years in the Seventies that Audit made a quantum leap in qualitative terms. 

When I joined the Indian Audit & Accounts Service (IAAS) nearly 40 Years ago, there was an important chapter on 'Higher Audit' in the CAG's Audit Manual.  This concerned the scrutiny of all sanctions issued by the Government -- which was considered to be such a special aspect of he CAG's audit that the Higher Audit Department (HAD) in the Accountant-General's office in every State usuaally functioned under the direct supervision of the AG, without the intervention of any Deputy AG.

The Superintendent in charge of the HAD was usually one of the most experienced and competent officers in the cadre of the Subordinate Accounts Service (SAS).  Invariably he was thought to be so efficient and outstannding on the basis of his previous track record that he continued to be rated very high in this special slot also.

But the HAD would normally produce no worthwhile material whatsoever for the CAG's Audit Reports, because its efforts never went beyond an intelligent reading of the sanctions.  All Government sanctions naturally tended to look reasonable on paper, for the simple reason that no sanction was ever issued without recording a 'prima facie' justification for it in a Secretariat file. 

The HAD would often call for the relevant records and peruse the original notes leading to important sanctions, but that hardly led anywhere.  If there were any serious flaws in any particular sanction, naturally they could not be located simply by reading the notes written for the specific purpose of justifying it! 

Any distortions which might exist could never be identified unless the auditors took the trouble of studying the whole background thoroughly and understood every aspect and nuance of the situation in which the sanction had been issued.  But the audit tradition did not envisage such research being undertaken, so the AG and his officers were no wiser after going through a Government file than before doing so.   

In due course successive CAGs began to notice and recognize the futility of according such a high-sounding title to a superficial scanning of Government sanctions ;  and they gradually replaced the concept of 'Higher Audit' with that of 'Efficiency-Cum-Propriety Audit', or 'ECPA'.  Nothing much came out of this either, because the old tradition could not be given up easily, and it was difficult to pin down inefficiency and impropriety by going through Government records in an unsystematic manner.

Research and reviews


But somewhere along the way 'ECPA' began to be expanded as 'Efficiency-Cum-Performance-Audit'.  So subtle was this shift in nomenclature that I do not remember exactly when and how it was effected.  But I do recall that as soon as the expression 'Performance Audit' started figuring in  the CAG's directives, the whole process of audit acquired a new and formidable dimension.  

For it was no longer a question of scrutinizing some of the Government's records in isolation :  one had to examine them in an integrated manner, sometimes in the light of overall knowledge of the context acquired from other sources.  And the new methods called for entirely new methods of scrutiny and assessment, involving sustained research and investigation.


Of course, this did not mean that routine audit of vouchers and other relevant documents could -- or would ever -- be given up :  for it did constitute an effective element of the existing system of checks and balances, and had necessarily to be undertaken for enforcing elementary discipline in public finance.

What the transformation implied was that special efforts also had to be made  -- adopting innovative techniques of audit -- for discovering how effectively public funds were being spent and how effectively public revenues were being collected.  These efforts manifested themselves in different forms, on several fronts.

For instance, the true nature of the huge subsidies sanctioned by the Government of India for promoting exports was assessed in the light of exhaustive market information gathered from relevant trade journals and statistical compilations.  On one hand, serious logical flaws in the Government's perception and arguments leading to specific sanctions of 'cash compensatory support' were pointed out.  On the other hand, the basic criteria adopted by the Government to justify such subsidies were themselves subjected to severe tests, and found to be very flimsy.  

Such exercises were extremely intricate ones which could be undertaken only by a few officers of the audit organization.  But an important new direction of the CAG's audit along which many intelligent officers could proceed took the form of overall reviews of the implementation of various massive development and welfare schemes undertaken by the Union and State Governments in areas like agriculture, industry, education, health care, family planning and employment generation.

Audit also showed increasing concern for evaluating the efficacy of systems, particularly in the collection of taxes and oher revenues.  And in the case of public-sector enterprises and autonomous bodies belonging to the Central and State Governments, overall appraisals of performance and the audit of specific transactions tended to receive equal attention.

Response and remedies


The response of the Government departments and organizations to the initiatives and overtures of the CAG's officers, both at the Center and in the States, has always been an important element of the environment of audit.
When Audit began to get a firm grip on the fundamental aspects of financial mismanagement or mischief, the Executive's resistance tended to materialize at the highest levels, making the auditors' task more and more difficult.  The CAG's organization had to adopt very intricate tactics to overcome such obstacles and gain access to all relevant information.

Sometimes the best efforts of Audit actually proved to be counter-productive.  When inherent weaknesses in certain existing patterns of heavy expenditure were exposed by complex audit investigations, the Government tended to dilute the basic criteria governing them, making value judgements even more elusive than they had been earlier.

The most striking example of this was provided by Mr. Baksi's powerful crusade against highly arbitrary export incentives.  The Government's response was to go on making the criteria more and more vague and diffused till a stage was reached when the sanctions became still more arbitrary, and Audit had to struggle still harder to come to grips with them.


A significant facet of the environment of audit concerns the attention paid to the CAG's Audit Reports by the Legislature and the remedial action taken by the Executive.  While these have not been too bad at the Center, they have been extremely unsatisfactory in the States.  This is a topic which deserves to be analyzed in a separate set of essays.


                                    (to be continued)

Monday, August 7, 2017

Attitudes Of Government Auditors : Tradition And Transformation

In the preceding posts I had recalled an important high-level discussion in which the seniormost officer of the Indian Audit & Accounts Service -- Mr. H.B. Bhar, Deputy Comptroller & Auditor-General of India, for whose inflexible passion for factual accuracy I had the greatest respect and even admiration -- went seriously wrong and made an incredible faux pas in terms of pure logic.

The subject of that discussion was a highly sensitive and intricate issue concerning the Government's massive export incentives, and the financial and moral implications of that mistake were enormous.  And it wasn't the only occasion on which Mr. Bhar had taken such a false step in a major context, presumably because of an inflexible mind-set he had inherited from a long and conservative tradition of routine audit in the British regime and in the early decades of independent India.

Those situations arose in the course of some extremely sophisticated audit investigations I was conducting as a senior civil servant.  But one doesn't really need to cite such complex and expensive issues in order to show how intrinsically the whole character of audit is conditioned by the rigid or rational attitudes of the auditors.  Even some simple scenarios can prove this basic truth, as I discovered quite early in my official career :-

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Glossary & annotations
(in same order as in text)


British Raj  --  Popular bilingual expression denoting colonial India in the 19th/20th centuries (till 1947, when India became independent).  'Raj' in Hindi means 'regime'.

Executive Engineer  --  In the British regime, the basic administrative unit called District covered a much larger area than it does now ;  and there was only a single Executive Engineer in charge of all civil public works -- like roads, buildings, bridges and canals -- in the whole District. 

Simla --  Beautiful hill resort in the Himalayas, summer headquarters of Government of India in the British Raj -- now called Shimla.

Accountant-General  --  In the early days of independent India, when I joined the civil service, each State had only a single AG, who therefore had an imposing image in Government and social circles.  Later on, when the scope of Govt. audit went on expanding, the larger States began to have two or more AGs, which diminished the official and social status of them all.  

Gorton Castle  --  Magnificent New-Gothic building, which used to accommodate the summer headquarters of the Govt. of India in the British Raj.  Subsequently, it was occupied by the Accountant-General of the State of Himachal Pradesh, with a few chambers reserved for the IAAS Training School. 

IAAS --  Indian Audit & Accounts Service. 

Yarrows  --  A lovely mansion of the British type, housing the IAAS Hostel.

Jack and the Beanstalk  --  English fairy tale, about a young boy who climbs a sky-high magic beanstalk, and finds a castle above the clouds where he encounters a ferocious giant.

West Bengal  --  Large Eastern State in India. 

Calcutta  --  Anglicized name for Kolkotha, which is now the city's official name.

Treasury  --  District office dealing with all Govt. payments and receipts.  

DRAFT PARA  --  Not a paragraph really, but a draft narrative containing tentative audit observations meant for inclusion in one of the CAG's numerous Audit Reports.  It is invariably sent to the concerned Govt. Department for a rejoinder and/or discussions, which must be duly considered before the material is finalized for publication.  I have really no idea why it's called a 'para', because a draft para may contain any number of paragraphs, even a hundred if necessary!

Kangsabati Project  --  An irrigation project in West Bengal, with dam, reservoir and canals, for distributing water drawn from river Kansabati.


Bankura  --  District in West Bengal.

Gazetted officers  --  In the British and even post-British regimes, postings, transfers and other matters relating to Govt. officers drawing salaries above a specified level were/are notified in the periodical official Gazette -- hence the term 'gazetted officers'.

SANCTIONS  --  In the Govt. set-up in India, 'sanction' means Govt.'s approval of a specific item of expenditure (on staff. equipment, etc.), entitlements (leave, loans, etc.), or projects, specifying levels or limits of funds provided (buildings, roads, development/welfare schemes, etc.).

Maharashtra  --  Major Western State in India. 

Bombay  --  Anglicized name of cosmopolitan metropolis on India's West coast, now called by its native name Mumbai. 

_______________


THE HINDU
27 December 1995


Of audit and attitudes

Recalling in recent weeks the substance of most of the topics featured in this column during the past one year, I couldn't help remembering some of my own varied experiences as an officer of the Indian Audit & Accounts Service.  This nostalgic sentiment marked a remarkable if gradual transformation of my whole attitude towards a civil service career in general, and towards accounts and audit in particular.

My true ambition when I was a student was to become a successful artist, writer and journalist.    But my father -- who had retired as an Executive Engineer in the British Raj -- had other ideas, and he saw to it that I wrote the civil service examination.  I was hoping to fail, and even tried to give some impertinent answers in the interview, but somehow the examiners seemed to like it, and one of them even kept smiling benevolently all the time.  And soon afterwards I was enrolled in the organization of the Comptroller & Auditor-General of India, as a probationer in the IAAS Training School, Simla.  That was in 1957.

Merely living in Simla for a whole year was a thrilling adventure.  The School, like the Accountant-General's Office, was located in an imposing building called Gorton Castle at the top of a magnificent hill ;  and the hostel for about twenty trainees -- which resembled an ancient mansion in England and was called Yarrows -- was on the rim of a deep valley.  Climbing up to the classes in the morning and again in the afternoon, I was always reminded of Jack and the beanstalk.  Life, in short, was very enjoyable.

But the curriculum was extremely drab and discouraging.  Constitution of India and Parliamentary Financial Control were  interesting subjects, but Fundamental Rules, Civil Service Regulations, Accounts Code Volumes 1 to 4, Audit Code, Audit Manual, and Book-keeping :  I could have found nothing more forbidding!

I failed twice in the departmental examinations held in the School, but had two more chances in the second year, when I was transferred as a probationer to the office of the Accountant-General, West Bengal, in Calcutta.  Sheer self-respect forced me to work very hard that year and pass the tests.  However, I was not very pleased when I became an Assistant Accountant-General in the third year in the same office -- although by the official and social standards prevailing those days, it was a prestigious and glamorous designation.

Negative spirit

To begin with I was asked to look after some treasury and public works audit sections, and the task was an endless ordeal, checking heaps of heaps of vouchers received in the audit office every month from the treasuries and PW divisions.  Every now and then I had to bulldoze the papers on Sunday afternoons, after spending an hour in a Chinese restaurant on the way and guzzling half a gallon of beer!

The attitude of my immediate boss, a Senior Deputy AG, was also not very reassuring.  One day he called me and said :  "Ramakrishna, look at these two cases in this old inspection report on the Kangsabati Project accounts. I want to convert them into draft paragraphs for the Audit Report.  Go and have a discussion with the Superintending Engineer in Bankura, and come back with a couple of drafts."

So I went on tour to the project site and met the SE as directed.  Now, this officer insisted that the two audit objections -- which concerned some infructuous expenditure -- were not justified at all because there had been certain extenuating circumstances  caused by unexpected floods ;  and he showed me some reliable evidence to support his argument.

The SE was an elderly person, and asked me about my background.  When I told him my father had been a civil engineer, he said :  "Young man, why don't you write to your father about these cases and find out what he thinks?  Then if he says we were wrong, you can pursue the objections -- otherwise, just drop them!"  

But I was already convinced that the objections were not quite fair, given all the facts ;  so I told him there was no need to trouble my father or anyone else, and agreed to close the cases.  What I didn't reckon with was how my boss would react.  When I went back to Calcutta and told him what I had done, he flew into a fury and gave me a severe dressing-down.

"What do you mean, you dropped the objections?" he raved, "I told you to come back with a couple of draft paras, and you have just thrown away the whole material!  How can you  prepare any case for the Audit Report if you behave like this?"

"But the SE explained everything convincingly, Sir!" I said.  "There was really no justification for those objections.  We can't include such flimsy things in the Audit Report, can we?"

But my boss was in no mood to listen to any argument, and expressed great displeasure.  The negative spirit which governed his whole approach gave me a severe jolt ;  and I was distressed to find later on that many other senior audit officers too seemed to have a similar perception of things.

Sanction vs. service

Take the case of even the Accountant-General, who happened to be a very liberal-minded and highly respected person.  In my fourth year I was posted as Assistant AG in charge of a set of sections auditing the salaries and other claims of gazetted officers of the State Government, and I had the privilege of  working directly under the AG without the intervention of any Deputy AG.  And another shocking experience was in store for me.

In West Bengal there was an unusual system of 'pre-auditing' Government expenditure.  There were special registers in which full details of the gazetted officers' credentials, postings and entitlements were noted, and their monthly salary bills had to be checked with the entries in those registers and cleared by the AG's office for payment by the treasury officers.

Now, there was a professor who was about to retire, and there was some confusion about the date of his superannuation because two different dates were somehow figuring in official records as his date of birth.  The State Government was still considering the problem, and meanwhile the professor continued to perform his duties although the first of the disputed dates had already passed.

The section officer put up a note saying that since there was a contradiction we could not authorize the payment of salary for the current month.  I did not agree.  I felt that since the officer was actually serving the Government during that month, his salary had to be paid ;  and that if the Government ruled subsequently that the earlier of the two dates was the correct one, it would have to sanction an extension of service to cover the delay in superannuation caused by the Government's own delay in resolving the issue.

Opposing the section officer's suggestion, I submitted a well-argued note to the Accountant-General, confidently expecting that he would approve my stand.  But the AG wrote an elaborate note in which he made some profound statements about the sanctity of sanctions, concluding that till the doubt was sorted out by the Government we could not authorize the payment of the professor's salary.

I asked for a discussion with the AG, and found myself at the receiving end of a pleasant but one-sided lecture about sanctions and their inviolable sanctity.  This episode left a bitter taste of disbelief and frustration in my mind, particularly because the AG did have a very liberal outlook but seemed to be overpowered by the formidable force of a negative audit tradition.

There was an interesting sequel to this story.  Several years later I was working as the seniormost Deputy AG in the office of the AG, Maharashtra, in Bombay ;  and an almost identical case arose, concerning a Government doctor who was on the verge of superannuation and had overshot the first of two conflicting dates.  There was no pre-audit system in Maharashtra, but the office suggested that the treasury officer should be told not to pay the doctor's salary till the issue was resolved.

And with great relish I over-ruled the proposal, recording a forceful note in which I argued that the sanctity of service was no less important than the sanctity of sanctions -- and that as long as the Government allowed the officer to go on working while it was wrestling with the problem, it had no choice but to go on paying his salary.

Changing environment

Meanwhile, the whole environment of Government audit in India was already changing in substantive terms.  Not only had the sphere of the CAG's jurisdiction progressively expanded (to cover Government revenues and public-sector undertakings), but there was an increasingly wider perspective in which the auditors were expected to organize their scrutiny of official records and evaluate their findings. 

And this trend would continue for more than a quarter-century, creating splendid opportunities for enterprising officers to undertake penetrating audit investigations and significant performance reviews.  I do look forward to sharing with the readers, from time to time, some of my recollections and reflections in this regard.

_______________


PostScript, 2017


I and the camera-eye


What I didn't disclose in the above article (and other similar ones in my column India of C-A-G) was my own vital role in bringing about the significant transformation in audit perceptions and the evolution of highly innovative and sophisticated audit practices, because my policy as a journalist was to introduce a personal element in my column only as an observer and not as an actor. 

Of course, there were some contexts (like the tobacco exports scene) where the dividing line tended to get quite blurred ;  but the Editor, Mr. N. Ravi, never chose to restrain me or even moderate my texts.

Friday, August 4, 2017

The Mystique And Mannerisms Of The Dedicated Smoker

Talking in the preceding posts about my serious-yet-lively conversation in 1995 with the Comptroller & Auditor-General of India about tobacco exports and cigarette brands, I couldn't help recalling a hilarious essay I had written in THE HINDU more than 50 years ago, about the mystique and self-conscious mannerisms of the dedicated smoker.

Those were days when smoking, in the perception of well-educated and imaginative young men in India, was a stylish symbol of sophistication, and not a sinister, disaster-bound obsession -- and it was still possible to take a light-hearted view of things.

This essay was inspired not only by personal experience but also by powerful international literary and cinematic impressions   Therefore its perspective had a universal dimension, although its field of vision was restricted to the well-to-do sections of society and completely overlooked the widespread fashion of women's smoking in the Western world.

And of course, like most humorous essays cast in the classical mold, this one had its fair share of grains of truth as well as exaggeration :-

______________

THE HINDU
Sunday Magazine
1963

THE SMOKER

The smoker sees the world through a cloud -- of his own making.  It's a blue and beautiful cloud, though, with a very thick silver lining to it.  He can look forward to pleasures which the non-smoking population knows nothing about.  Like the cosmonaut orbiting the earth in space, he looks at the world with a different perspective.  Like the spaceman, he faces dangers which can be disastrous.  But the smoker is courageous too, in his own way, and is prepared to pay the price of his adventure.

The smoker is a much-reproached individual.  People everywhere seem to be bent on thwarting his fundamental right to smoke.  Trains, restaurants, street-cars, there's hardly a place where he's given a free hand. Placards everywhere admonish him with a pitiless 'No!'.  Managements of cinema houses and concert halls, in particular, take an unholy delight in suppressing the poor smoker.  They're convinced that his sole purpose in life is to set fire to their property, and/or undermine the health of their patrons.  The smoker has to be shown his place, and the meekest usher manages to do so without meeting with any resistance.

Doctors, however, aren't so successful, presumably because they lack the support of the police.  The smoker is fed up with the spineless way in which he has to put up with the tyranny of law and order, and in his own house he would brook no opposition, not even his wife's.  He vehemently resents the interference of his critical friends.  But the smoker knows only too well that his case is weak.  The more addicted he is to his habit, the more clearly he can see it -- that's no doubt why the most outspoken advocate of smoking is not your determined puffer, but the one who likes to call himself a moderate smoker.

The latter does indeed go out of his way to establish the virtues of his cult.  Without any provocation he'll volunteer the information that smoking is good for the digestion, and that it perceptibly improves the appetite.  It's a tonic for tired nerves, a tranquilizer for a troubled mind. As for its evil effects, why, isn't moderation itself a sufficient guarantee against them?  The moderate smoker is ostentatiously proud of his own moderation.  He's quite sure he will never become an addict himself.  He sneers loftily at the diffident non-smoker, who, though tempted, is reluctant to touch a cigarette for fear of its becoming an obsession.  This frame of mind lasts as long as he manages to remain moderate.

The addict, by contrast, is rather subdued in his approach, and more or less on the defensive.  True, he might flare up if someone tried to hurt his feelings, but he rarely starts an argument himself.  He's all for peaceful co-existence.  So long as you don't force your opinion on him, he's perfectly willing to leave you alone and puff away contentedly at his cigarette chain or his pipe.  He knows life isn't going to be a bed of roses for him ;  and there are times when he wishes tea would smell like tea to him, and food wouldn't taste like fodder.  Often enough he's making an honest if futile attempt to cut down his smoking.  That's why, by and large, he isn't so keen on picking up a quarrel with the opposite camp. 

Not that the advanced smoker is all modesty : oh, no!  Your twentieth-century veteran has none of the rustic simplicity of the pioneer.  He likes to be noticed in company, and he's gleefully aware that he stands out from the rest in any gathering.  He tries to look glamorous in many ways.  He carries a smart tin of fifty cigarettes wherever he goes, and places it prominently in front of him whenever he sits down.  Or else, he keeps pulling out a fanciful cigarette-case or a glittering lighter from his pocket every other minute.  If he affects a pipe, he might make a great to-do about shredding the weed in his palm, and filling the magic bowl.  Back home, this gentleman always has two or three dusty, battered relics on his mantelpiece -- he might never touch them, but he likes to have them on display.  Still more sophisticated is the fellow who rolls his own cigarettes;  apparently he's a perfectionist in his own eyes, no matter how clumsy he actually is. 

But probably the biggest exhibitionist of them all is the cigar smoker.  He's a self-styled connoisseur who gives himself intolerable airs merely selecting a cigar from a lot already bought and dearly paid for.  Of course, other people draw their own conclusion about his taste!  With the devastating aroma he weaves around himself, he  intimidates not only all honest non-smoking citizens, but his fellow-smokers as well.  However, for all his tough and blustering exterior the cigar man is really a child at heart :  he seems to derive such a divine joy from sucking the cold end of his cigar and chewing it.

One often wonders why there's no National Association of Smokers, seeing that the smoker is so ubiquitous, and has so many grievances.  If there's a local union unique under smokers somewhere, I'm not aware of it.  Assuredly the smoker isn't clan-minded.  The only time he recognizes the brotherhood is when he spots one of them stranded without a match-stick.  Then the universal unwritten code of smokers demands that he should stop and offer his own match-box or lighter, or at least the stub of his lighted cigarette, whether he knows the person or not.  The same code also authorizes the stickless smoker to tap any other smoker on the shoulder and ask for a light -- class, creed or even nationality is no bar.  It's marvelous to see this unique understanding among smokers all over the land, though there's no tribal instinct in them.


Lighting the other man's cigarette is a problem which has baffled the smoker for generations, and doubtless it will continue to vex him for centuries to come.  "Thou shalt light thy neighbor's fag," bids the smoker's gospel, but it's easier bidden than done.  Usually thy neighbor puts out the match himself, with his nervous breathing.  In case he fails, a small gust of wind does it for him.  If he does manage to light his wretched fag, it's seldom before thy hospitable fingers have been duly scorched.  Often, after making several useless attempts to help him, thou hast no choice but to hand thy matches over with a sheepish grin. 

Sunday, July 30, 2017

When I Had A Lucky Strike During A Tough Discussion On Tobacco Exports

The 1970s were a wonderful time in my official career, because as a field officer conducting certain unprecedented investigative audits in the most formidable economic Ministries like Commerce, Industry, Agriculture and Supplies, I enjoyed absolute and unlimited freedom of action, and was able to adopt my own audit principles and could device my own extremely innovative audit procedures and practices.  

In this context, where I invariably encountered very forceful resistance from the Executive side at the highest levels, , I received immense encouragement and moral support from my superiors in the Audit establishment, including the Comptroller & Auditor-General of India (Mr. A. Baksi, who always spoke to me in an intimately friendly tone which bridged the enormous gulf which normally separated us in rank and status).

The CAG's audit under the Constitution of India covered the financial concerns of the Central Government and more than a couple of dozen State Governments all over India, as well as the performance of all the commercial enterprises owned by them.  It was an awesome jurisdiction, and it wasn't usual at all for the CAG to have any discussions with field officers in any connection.  But he was so fascinated by what I was trying to accomplish that he made a conspicuous exception of my case, and would now and then send for me to find out the nature and scope of ongoing and prospective investigations.

It was in such a context that I happened to outline my perception of the glaring anomalies in the tobacco export trade, as explained in a recent post (Manifestation Of The British Tobacco Empire In Independent India).  Present in the smoke-filled chamber of the CAG were Mr. G.N. Pathak, Accountant-General (my immediate boss), and the redoubtable Mr. H.B. Bhar, Deputy CAG.

In the course of the earnest discussion, the CAG and Mr. Bhar subjected me to a severe cross-examination, and I had a ready and accurate  answer for every intricate question they posed.  Mr. Baksi -- who was intensely concentrating on the intricate issue while puffing away at his cigarillos -- seemed very pleased, and decided to have a little bit of fun to relieve the tension.

"Are you a smoker, Ramakrishna, by any chance?" he intervened.

"I used to be, Sir, but not now." I replied.

"What did you use to smoke?"

"Mainly a pipe, Sir!  But also cigarettes sometimes, especially if I could get a foreign brand."

"Is that so?  Well then, let me ask you some tough questions!" the CAG said, with a mischievous smile. "Are you ready?"

"Yes, Sir," I said nervously, not knowing what to expect.

"What is the difference between Philip Morris and Lucky Strike?"

"Lucky Strike has a sweet taste, Sir, and Philip Morris tastes bitter."

"Not Bad!  Which Indian cigarette tastes bitter, like Philip Morris?"

"Char Minar, Sir!"

"Right again!  Which pipe tobacco has a sweet flavor, like Lucky Strike?"

"Three Nuns, Sir!"


"OK, but hold on!  Now I have a question I'm sure you can't answer!  What is Sobranie?"

"It's a cigarette made in France with Russian tobacco, Sir. It has an oval shape, and is wrapped in black paper with gold lettering."

Mr.Baksi seemed delighted, and exclaimed : "Well, I give up!  You win!" 

But of course, it was a pure coincidence that I knew all the right answers, and a couple of different questions were very likely to have floored me.  I just had a Lucky Strike, I guess!

Unfortunately, I wasn't so lucky with the day's main business.  As you'd have noted from the earlier post, the Deputy CAG wasn't convinced by my perfectly logical argument about the CAG's jurisdiction in the given context (even though Mr. Baksi himself was strongly inclined to agree with me), and we didn't process the red-hot material for the CAG's audit report.  


Anyway, it wasn't really wasted, for I could use it so colorfully in my column India of C-A-G in THE HINDU twenty years later!

Friday, July 28, 2017

Tricks Of Indo-British Tobacco Trade : Seeing Through The Smoke Screen

It's actually a good thing when a perfectly logical argument meets with strong opposition, because that usually gives you an opportunity to reinforce the narrative and make it still more forceful without letting it look like an overkill.  And here's an excellent example of such a 'blessing in disguise' : I won the match 6-0, 6-0, 6-0, as you can see!

____________________


Glossary & annotations
(In same order as in text)


Tobacco, tobacco!  --  Please see preceding post ( Manifestation Of The British Tobacco Empire In Independent India ).

ITC Ltd.  --  Indian Tobacco Company.

ILTDC  --  Indian Leaf Tobacco Development Company.

Agmark  --  A seal of approval given to agricultural products by authorized Government labarotaries, certifying conformity with standards specified by the Directorate of Marketing and Inspection in the Ministry of Agriculture.

Public Accounts Committee  --  A panel in the lower house (Lok Sabha, meaning 'People's Assembly') of Indian Parliament.  One of its main functions is to discuss important audit reports of the Comptroller and Auditor-General of India, with senior civil servants as 'witnsses' (who usually turn into defendants!).  The Chairman of the panel is normally a prominent member of the Opposition.  There are corresponding PACs at the States level.

BAT  -  British  American Tobacco Company, London.

Maharashtra  --  A major State on the West coast of India.


____________________

1


THE HINDU
11 May 1995


'Tobacco, tobacco!'


          With reference to the article 'Tobacco, tobacco!' published in these columns
          on April 13, Mr. P.B.K Murthy, Retired Deputy Chairman, ITC Ltd., writes :-

Mr. M.V. Ramakrishnan's efforts in recalling certain intriguing stories relating to tobacco exports in the early Seventies call for clearing of the smoke screen.   An adverse impression has been created through the article, and it would appear government agencies, Indian officials, trade and industry were less than honest and busily selling India cheap while other countries fervently practiced nationalism.  While this is not to hold a brief for my previous employer or for their associates, I wish to bring a correct perspective to the subject. 

Perhaps the author refers to me when he speaks of the Vice-Chairman of the Tobacco Export Promotion Council, Madras.  I held those positions of trust for a number of years in the Sixties and Seventies.  He has alleged among other things that the Managing Director or some other senior official of ILTDC had a strong bias for settling extremely low prices for its exports to allied firms abroad.  The following facts would help to set right the erroneous impression created by Mr. Ramakrishnan.  

Exports of Indian Leaf Tobacco development Company (ILTDC) were mainly to countries which did not bother about government minimum export prices.  The ILTDC was the largest single exporter to all the four largest manufacturers in the U.K.and in Japan.  It had no interest in government minimum prices, as our export prices were well above them.  The Tobacco Export Promotion Council noticed that the other traders were also exporting to countries above the government-fixed minimum export prices.    

Government statistics would prove that at that time the price for any grade of tobacco obtained by ILTDC was the highest.  One of the simple reasons for this was, whilst others generally had to export through intermediaries which took a five per cent commission, ILTDC made direct exports mostly without intermediaries.  Even if some exports had to be made in the name of an intermediary which supervised them, such intermediary was paid for its services by the importer abroad.  In the case of exports to Japan, the Japanese government monopoly only imported through its agents, and the commission paid by ILTDC to its agent was the lowest in the industry.  The ILTDC was aware that the company's interests would be served best when the trade as a whole prospered.   

The Tobacco Export Promotion Council did take care in recommending prices.  The concern for the Indian farmer and trade preceded any other parameter in recommending or fixing prices.  The recommendation was arrived at by consensus of members, who included other members of the trade.  The recommendation forwarded to the Commerce Ministry by the Tobacco Export Promotion Council was one of the inputs for the Ministry to decide the minimum export prices.  The Ministry was also aware of the export prices from other producing countries to the U.K.  It would be uncharitable to believe that the Commerce Ministry did not apply its mind before finalizing the minimum export price.  Further, the Ministry indeed had men of experience and integrity, and it would be absurd to paint all of them with the brush of dishonesty.

All exports of tobacco had to be certified by the Agmark authority of the Ministry of Agriculture.  This certificate ensures that the grade declared by the exporter is correct and consistent.

The importing manufacturers appreciated the services rendered by ILTDC to the whole trade through its R&D and extension services.  The importers abroad respected ILTDC for its services to farmers and the trade while retaining its integrity and reliability.

ILTDC's assets in India were purchased by ITC  Ltd. at a reasonable price.  This brought substantial export business to ITC, which helped it in no small measure.

The current controversy between BAT and ITC has been linked by Mr. Ramakrishnan to the need to restore ILTDC/ITC as a passive supplier of tobacco to the U.K.  This must be an original interpretation unknown to both the feuding parties.

____________________


2


THE HINDU
18 May 1995


India of C-A-G


Oh tobacco !


I am grateful to Mr. P.B.K Murthy, formerly Deputy Chairman, ITC Ltd., for his comments (May 11) on my article on the tobacco export scene.  I am sure he is talking with conviction when he declares that my view on tobacco export trends 'calls for clearing of the smoke screen'.  But conviction carries the hazard that one may quite sincerely believe what is not true! 

It is my belief -- as a former investigative auditor of the Government's affairs -- that the thick smoke screen which has always surrounded India's tobacco exports has been the result of the serious distortions caused by the traders during the past several decades, which I had explained in the disputed article.  My recollections were not made from memory alone, but were also
based on authentic information contained in certain notes I had jotted down 20 years ago in the course of my audit scrutiny of the Government's concerns on the export front.

Mr. Murthy says that according to me, "the Managing Director or some other senior official of ILTDC (Indian Leaf Tobacco Development Company) had a strong bias for its exports to allied firms abroad."  That is not a correct quotation!  What I had said was that the firm ILTDC had such a strong bias, and its senior officials used to play a leading role in the business of the Tobacco Export Promotion Council, which had the responsibility to recommend proper minimum export prices.  Individual officials of the company might well have had a different attitude ;  but being placed in a position where they could influence the environment in favor of the clear corporate policy of the institution which employed them, they could hardly have avoided doing so.


Policy and practice


The same thing might have been true of the Commerce Ministry officials also.  Mr. Murthy says : "The Ministry indeed had men of experience and integrity, and it would be absurd to paint all of them with the brush of dishonesty."  But I never said the officials were all dishonest!  What I did assert was that, acting on the recommendations of the Export Promotion Council, the Commerce Ministry used to fix extremely low minimum export prices (MEPs) for FCV tobacco.  In doing so, many of the officials might only have been conforming to the overall policy laid down by their political masters ;  but that did not absolve the Ministry of blame for encouraging a regime of deception!  

In the late Seventies, Dr. P.C. Alexander, who is now Governor of Maharashtra, was working in the Commerce Ministry as Additional Secretary for some time and then as Secretary.  He had attended some sessions of the Public Accounts Committee of Parliament, as a witness during its discussions on certain strong audit observations about the arbitrary manner in which cash subsidies were being sanctioned by the Government for promoting exports.  Can anyone question or even doubt the honesty and integrity of Dr. Alexander?  And yet, he did find himself those days in a situation where he was forced to defend some extremely wrong decisions which had been taken by the Government.

Since those issues had been raised as a result of my special audit investigations, I used to be present in the PAC meetings as a shadow of the Comptroller and Auditor-General of India, who was always there to assist the Committee and guide its deliberations. Dr. Alexander is a very nice person ;  although he was miles above me in seniority and status and I was a constant nuisance in the Commerce Ministry, he never showed any resentment towards me.

On one occasion, during a recess in the PAC's tough proceedings, he told me in a frank and friendly tone :  "My dear fellow, you must have some sympathy for your fellow-officers in the Government!  Tell me, what would you do if you came on deputation to the Commerce Ministry as a Joint Secretary?  Would you be able to stop all this?"  The only answer I could give him was that I hoped such a situation would never arise --  and luckily for me, it never did!  I leave the moral of this story to the reader's imagination.

Mr. Murthy says :  "An adverse impression has been created through the article, and it would appear government agencies, Indian officials, trade and industry were less than honest and busily selling India cheap . . ."  -- Yes, Sir, the article was certainly intended to convey the very adverse impression of tobacco trade practices which had crystallized in the course of my audit research, and I had plainly said so!  When Audit justifiably finds fault with the Executive's actions or inactions, there can only be one or both of two reasons :  inefficiency and/or malpractices. And when business enterprises gain enormously from Government error, it does usually indicate a nexus between them and the Government or its officials.  Is this not quite obvious?  


Irrelevant  arguments


Now, let us take up the specific question of minimum export prices of tobacco in the Seventies.  Mr.Murthy says that "ILTDC's exports were mainly to countries which did not bother about government minimum export prices."  Indeed, why should those countries have bothered?   It was for India to worry about what was going on!       

Mr.Murthy adds :  "ILTDC had no interest in government MEPs, as our export prices were well above them."  Of course, they would have been so!  I never said that ILTDC used to export FCV tobacco at prices lower than the minimum export prices.  What I did say was that the MEPs themselves used to be fixed at ridiculously low levels, so as to make the actual realizations look reasonable.  There was a striking parallel to this in the case of steel tubes and pipes exports -- but let us talk about that some other time!

Mr. Murthy says :  "Government statistics would prove that at that time the price of any grade of tobacco obtained by ILTDC was the highest" (meaning, of course, highest among prices secured by Indian exporters).  This might well have been so!  ILTDC was the leader and trend-setter on the export front ;  and if it was bent on supplying large quantities of fine FCV tobacco to associated foreign firms at abnormally low prices. Who would pay more for similar grades of tobacco exported by other Indian companies?  Would the statistics prove that because ILTDC got better prices than other Indian companies, it did not accept unreasonably low prices in relation to what other exporting countries were getting for tobacco of the same quality?

Mr. Murthy goes on :  "All exports of tobacco have to be verified by the Agmark authority of the Ministry of Agriculture.  This certificate ensures that the grade declared by the exporter is correct and consistent."  But I had not said a word about any quality deficiencies!  On the contrary, I had highlighted the fact that India's exported FCV was among the finest in the world, quoting the National Council of Agriculture.  And that is precisely why the actual export prices must be considered to be far too low!   

However,  the fact remains that in 1980 British Customs officials did intercept Indian FCV consignments which were found to be of grades higher than those shown in the invoices.  It is not for me to say whether the Agmark certificates -- if they had been issued in those cases -- were right or wrong. One must ask British Customs, I suppose!


Accolades and award


Mr.Murthy says :  "The importing manufacturers appreciated the services rendered by ILTDC to the whole trade through its R&D and extension services.  The importers abroad respected ILTDC for its services to the farmer and the trade, while retaining its integrity and reliability.  Of course, why wouldn't the importers abroad be happy, when ILTDC was supplying excellent FCV tobacco to them at some of the lowest prices in the world? : 

It was in ILTDC's own interests (and those of the Imperial Tobacco Company in Britain and its branches and associates elsewhere in the world) that good R&D work was undertaken by the firm.  But how does that alter the reality of extremely low prices being secured for exports, and correspondingly being paid for procurement of tobacco leaf in India?     

As for ILTDC's services to Indian tobacco-growers, why look for accolades from foreigners?  Even the Federation of Indian Chambers of Commerce and Industry (FICCI) had given it an award for that!  And what were those services?  

Extending credit (mainly in the form of fertilizers, seeds, coal, etc.), and in due course mopping up their produce at the cheapest imaginable price on behalf of the highly pleased importers abroad! Naturally, the importers must have found ILTDC absolutely reliable!  


East India Company


Mr Murthy concludes :  "The current controversy between BAT and ITC has been linked (by the author) to the need to restore ILTDC//ITC as a passive supplier of tobacco to the U.K.  This must be an original interpretation unknown to both the feuding parties."   Well, it would have helped if Mr. Murthy  had explained what precisely then is BAT's motive in the ongoing confrontation.

In the absence of such clarification, the only logical impression which emerges is that BAT is fighting this battle mainly for making ITC's Leaf Tobacco Division the East India Company of the British Cigarette Empire, a unique distinction ILTDC used to have earlier in this century!