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Is PAC Going beyond Its Remit by Examining Monetary Policy?

R B Sinha (sinharajiva@gmail.com) is a former Director General of Audit at the Comptroller and Auditor General of India.

In order to assess, analyse and lay responsibility for a policy decision, whether the benefits or losses are immediately felt or not, a multi-institutional process is required. It is the basic foundation of the principles of oversight, accountability and transparency that institutional complementarities would provide a more holistic and exact picture of the implementation of policy and the performance of those responsible for it. In the case of demonetisation, to assess and lay responsibility for the policy’s shortcomings requires such an approach.

In an unprecedented move, the Public Accounts Committee (PAC) of Parliament under the chairmanship of K V Thomas, a former Congress minister, unanimously decided in December 2016 to review the country’s monetary policy. The PAC’s decision was in the light of the large-scale hardships faced by people due to Prime Minister Narendra Modi’s move to demonetise the ₹500 and ₹1,000 currency notes from 8 November 2016 onwards (PTI 2016). In doing so, the PAC did not deem it fit to wait for the audit report of the Comptroller and Auditor General (CAG), on the implementation of the demonetisation policy. It was perhaps for the first time in the history of the PAC, that a subject was selected for examination within a few days of an event occurring. Further, the review of a government policy and that too, the monetary policy of the government has not been undertaken by the CAG or the PAC, in the last three decades.

Oversight on Demonetisation

The PAC has since summoned the governor of the Reserve Bank of India (RBI) and the secretaries of the various departments within the finance ministry, on 20 January and 10 February 2017, to discuss the various aspects of the issue. Meanwhile, the Standing Committee of Parliament on Finance under the chairmanship of M Veerappa Moily, also a former Congress minister, had already discussed the subject, “Demonetisation of Indian Currency Notes of ₹500 and ₹1,000 and the Impact Thereof” with the RBI governor and the various secretaries of the finance ministry on 18 January (Mishra 2017). As was expected, these dignitaries did not appear to give any information to the PAC that was not available in the public domain or which could be ascertained through a right to information application.

It was however not the first time that the PAC selected a subject suo motu. In the recent past, the previous PAC (15th Lok Sabha 2009–14) under the chairpersonship of Murli Manohar Joshi had decided to review the “recent developments in the telecom sector” in January 2010, when the CAG under Vinod Rai had not even submitted its audit report (PTI 2011). At that time, however, the PAC had been informed by the then CAG that they were examining the grant of telecom licences in 2008 and that their report would be submitted soon. The CAG submitted the performance audit report on the issue of 122 telecom licences and allocation of 2G spectrum on 16 November 2010 and the rest is history. However, the draft report prepared by the then chairman (Murli Manohar Joshi of the BJP) was not approved by the PAC in which the ruling United Progressive Alliance (UPA) coalition had the majority of members (Vyas 2011). The subject “Recent Developments in the Telecom Sector Including Allocation of 2G and 3G Spectrum” is still listed on the PAC website (serial number 106 of the subjects selected) and continues to be under the consideration of the present PAC, even six years after the submission of the CAG’s 2G audit report to Parliament and five years after the delivery of the landmark judgment of the Supreme Court of India in February 2012, cancelling the 122 telecom licences.

PACs, the world over, have been wary of encroaching upon the policymaking domain of the executive. The committee is generally not concerned with questions of policy in a broad sense. As a rule, it expresses no opinion on points of general policy, but it is within its jurisdiction to point out whether there has been extravagance or waste in implementing that policy.

International Policy

In theory we are not supposed to concern ourselves with policy, but policy and economy merge into each other with such subtle gradations that it is quite impossible to decide a clear-cut line between what is policy and what is not.

— Sir Osbert Peake, Chairman of Westminster PAC, 1945

This approach is generally adopted in the “Westminster model” of PACs, especially those which have a narrow “audit” function. The standard operational reason why PACs do not deal directly with matters of government policy is the need to maintain a consensus and non-partisanship within the committee, so that the final reports prepared by the committee are taken seriously not least by the government but also by other institutional bodies to whom the reports are addressed. Few PACs deal directly with policy issues as well as the effectiveness in implementing the policy, and these PACs are also prepared to call ministers as witnesses, rather than calling officials, exclusively.

Australian auditors talk of the “results” or “effects” of policy. The Australians debate the application of a concept such as “the public interest.” This dilemma can be most pronounced in areas where state activity or intervention is undertaken in different ways such as nationalisation, privatisation, “contracting-out,” public–private partnerships, public subsidy and service standards. While it was not appropriate not to comment on “the political good sense or otherwise of policy,” auditors should assess and report upon “the administration of that policy and testing of its effectiveness, efficiency and economy for the stated purposes and for any side effects.”

Normally, most PACs seek to operate on the basis of consensus and unanimity, the world over. Countries like South Africa, Australia and New Zealand have a frequent practice of formal voting. The United Kingdom’s PAC generally resorts to a formal vote less than once a year. The Australian PAC notes on its website, that “traditionally the Committee adopts a cooperative and bipartisan approach to its work.” The German committee’s reports must contain the recommendations of the committee responsible and the reason behind those recommendations, therefore, equating the importance of the opinion of the minority members with the comments of the committees concerned. Standing orders in New Zealand enable a select committee, such as its PAC, to indicate the differing views of its members in its reports.

The Indian Position

As per the Rules of Procedure and Conduct of Business in the Lok Sabha, the PAC is empowered with the responsibility to examine the accounts showing the appropriation of sums granted by the House for the expenditure of the Government of India, the annual finance accounts of the Government of India, and such other accounts, laid before the House as the committee may think fit.

In scrutinising the appropriation accounts of the Government of India and the report of the CAG thereon, it shall be the duty of the committee to satisfy itself (a) that the moneys shown in the accounts as having been disbursed were legally available for, and applicable to, the service or purpose to which they have been applied or charged; (b) that the expenditure conforms to the authority which governs it; and (c) that every re-appropriation has been made in accordance with the provisions made in this behalf under rules framed by competent authority.

It shall also be the duty of the committee (i) to examine the statement of accounts showing the income and expenditure of state corporations, trading and manufacturing scheme, concerns and projects together with the balance sheets and statements of profit and loss accounts which the President may have required to be prepared or are prepared under the provisions of the statutory rules regulating the financing of a particular corporation, trading or manufacturing scheme or concerns or project and the report of the CAG thereon; (ii) to examine the statement of accounts showing the income and expenditure of autonomous and semi-autonomous bodies, the audit of which may be conducted by the CAG of India either under the directions of the President or by a Statute of Parliament; (iii) to consider the report of the CAG in cases where the President may have required him to conduct an audit of any receipts or to examine the accounts of stores and stocks.

If any money has been spent on any service during the financial year in excess of the amount granted by the House for that purpose, the Committee shall examine with reference to the facts of each case the circumstances leading to such an excess and make such recommendation as it may deem fit, Provided that the Committee shall not exercise its functions in relation to such public undertakings as are allotted to the Committee on Public Undertakings by these rules or by the Speaker.

An important function of the committee is to assess that the money granted by Parliament to an institution or to the government has been spent, respectively “within the scope of the demand.” The implications of this phrase are that (i) money recorded as spent against the grant must not be more than the amount granted, (ii) the expenditure brought to account against a particular grant must be of such a nature as to warrant its record against the grant and against no other, and (iii) the grants should be spent on purposes which are sent out in the detailed demand and cannot be spent on “any new service not contemplated in the demand.”

Institutional Transparency and Accountability

Though the PAC like other parliamentary committees generally functions in a bipartisan way, newspaper reports on the discussions in the PAC, on 20 January 2017, indicate that there was an apparent division in the committee with the majority of ruling party members indirectly defending the action of the government, while the chairman of the committee insisted on laying responsibility for the catastrophic consequences of the demonetisation policy, causing death of 100 odd citizens (Statesman 2017). The table had clearly been turned. In 2010–11, the then PAC members of the opposition National Democratic Alliance (NDA) parties were pushing for the fixation of responsibility on the UPA-II ministers for causing the loss of thousands of crores of rupees to the exchequer, whereas in the meeting held on 20 January 2017, the members belonging to the ruling NDA coalition were trying to control the damage to their government. In India, PAC proceedings are not open to the media nor to the public, though many PACs in other countries keep their proceedings open to the members of the public except, in cases where they prefer to hold the meetings on camera.

The PAC is the most important financial committee and the core fulcrum of the accountability system of Indian parliamentary democracy. The entire country looks up to their findings. The committee’s work depends to a great extent on the results of the audit and the examination of the accounts of the union government, as carried out by the CAG. As of date, the PAC has 153 outstanding subjects under its consideration since 2009, many of which have been pending for examination for several years. Incidentally, the previous PAC (15th Lok Sabha) had covered 54 fresh subjects (excluding 46 Action Taken Notes (ATNs)) during 2009–14 whereas the PAC of the 14th Lok Sabha had examined and submitted 41 fresh reports (excluding 43 ATNs). Based on this trend, it is anticipated that not more than half of the pending cases can be examined in the remaining time of the current Lok Sabha, as the committee has submitted 38 fresh reports (25 ATNs) until now. The present PAC has created seven subgroups to expedite the examination of subjects, which should undoubtedly be welcomed by all stakeholders. There is, however, an urgent need to strengthen the PAC by extending professional support to members, similarly on the lines of the expertise and help a member of the US Senate and House of Representatives receives, when the latter is either reviewing a policy or is a part of a committee.

In fact, the Supreme Audit Institution plays a crucial role in the functioning of the PAC and the CAG is often termed as “friend, philosopher and guide” of the committee. It is therefore felt that it would be extremely difficult for the committee to examine an individual activity or an event of a department and pinpoint exactly the areas which need improvement, without the support of the CAG as an institution. In the formulation and implementation of a major policy decision like demonetisation, a large number of stakeholders are involved such as the RBI, Ministry of Finance, Prime Minister’s Office, State Bank of India, public sector banks, private commercial banks, currency notes printing presses, currency chests, ATMs/banks and branches distributed throughout the country. It was, therefore, highly desirable and appropriate for the PAC to request the CAG to take up a performance audit on the implementation of the demonetisation policy expeditiously, and based on their report the committee could then have examined all the major players and appropriately fixed the responsibilities on specific individuals and institutions, for the negligence and recklessness with which the policy was implemented.

Need for Performance Audit

The chairman of the PAC was right, when he demanded to know on whom the responsibility of the death of 100 odd individuals should be fixed. Was it due to negligence by the PMO or the finance ministry, in approving the scheme? Or, was it due to the non-application of mind by the board of the RBI? Or was it due to sheer inefficiency of the implementing agencies—printing presses, currency chests or bank branches? A performance audit of the implementation of the demonetisation policy by the CAG of India, with its branches throughout the country, could be commissioned with the following objectives:

• Whether the policy was formulated after the examination of all the pros and cons related to the policy;

• Whether the prime objective of the policy to eradicate black money and eliminate fake and counterfeit notes has been achieved;

• Whether the lack of proper preparation, for example, the non-printing of new ₹500 currency notes initially and the constraints in printing enough of ₹500/2,000 currency notes and supplying people with these new currency notes in due time, were pointed out by the central board of the RBI;

• Whether any member of the board of the RBI highlighted the issue of reconfiguration of 2,20,000 ATMs and the time required for it;

• Whether the Central Board of Direct Taxes or, the Enforcement Directorate and other investigative agencies were put on alert, in advance, to have real-time oversight over the ATMs/bank branches during the demonetisation exercise;

• Whether agencies responsible for propagating the digital push had been forewarned and provided adequate resources to strengthen the core infrastructure, as a result of demonetisation and the expansion of the Digital India programme.

The PAC has thus, by its suo motu action to examine the country’s monetary policy, virtually precluded the CAG from taking the audit of the implementation of policy. However, without a detailed investigation by an independent constitutional institution, it would be extremely difficult for a political body like the PAC to conduct a review of monetary policy and fix responsibility on any individual or institution particularly, when the ruling coalition has the majority of members in an oversight parliamentary committee. One hopes that this suo motu action taken by the PAC led by Thomas does not meet the same fate that the previous suo motu examination of the “recent developments in the telecom sector” met, when examined by the Joshi-led PAC. The latter report of the PAC did not get finalised for several years. Perhaps, no lessons have been learnt from our past experiences.

Under the given circumstances, it is best left to the Supreme Court to perhaps request the CAG to conduct a performance audit of the implementation of the demonetisation policy expeditiously in a time-bound manner and submit a report by the end of the year so that the country could fix responsibilities for the gross negligence and at least acknowledge and learn some lessons from this huge exercise.

References

Mishra, A R (2017): “RBI Governor Urjit Patel’s Briefing Leaves MPs No Wiser about Demonetisation,” LiveMint, 19 January, viewed at http://www.livemint.com/Politics/RtXkV5at6QxrUbUqoSNIqJ/Demonetisation-Urjit-Patel-faces-tough-questions-from-parli.html.

Parliament of India Lok Sabha: Public Accounts Committee Information, https://tinyurl.com/j3fjrhb. Parliament of India, Financial Committees: Lok Sabha.

PTI (2011): “No Pressure from Murli Manohar Joshi on 2G Audit: Vinod Rai,” Economic Times, 16 November, viewed at http://economictimes.indiatimes.com/news/politics-and-nation/no-pressure-from-murli-manohar-joshi-on-2g-audit-vinod-rai/articleshow/10754890.cms?prtpage=1.

— (2016): “Demonetisation: Public Accounts Committee to Call RBI Governor in January to Review Economic Impact,” Economic Times, 1 December, viewed at http://economictimes.indiatimes.com/news/economy/policy/demonetisation-public-accounts-committee-to-call-rbi-governor-in-january-to-review-economic-impact/articleshow/55724523.cms.

Statesman (2017): “PAC the Loser,” Statesman, 17 January, viewed at http://www.thestatesman.com/opinion/pac-the-loser-1484599949.html.

Updated On : 17th Mar, 2017

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