This is the era of the supremacy of the auditor,the monitor,the investigator and the prosecutor,governance be damned. It is more important to sniff out wrongdoing than to actually do anything. It does not matter if nothing happens,but it matters that you should be on the side of those who have the power to damn the doers.
According to reports last week,the Controller of Defence Accounts the in-house agency of the ministry of defence that provides financial advice,book-keeping and internal audit services has sharply criticised the mismanagement of funds by the armys senior-most commanders,incriminating both the current army chief and his predecessor when they headed the Northern Command. The audit relates to the special funds allotted to these commands under the army commanders special financial powers for urgent procurement in situations of operational urgency. The critique relates to insufficient information on transactions being provided to auditors,to innumerable procedural violations constituting misuse of delegated powers,to artificially reducing contract values to keep the transactions within the delegated powers,and to procuring items from trading firms rather than directly from manufacturers. The report has evidently alarmed the raksha mantri sufficiently to require transactions made under these special powers to be cleared by financial advisers in the ministry.
This is all of a piece with the way the Indian bureaucracy (including the bureaucracy of the armed forces) thinks and acts. First,decentralise and devolve the power to say no right down the line,and centralise the power to say yes in a way that obtaining a yes decision will mean having to go through many hands,all of whom can say no at each stage before you get anywhere near the final decision-maker. Even if you do reach there,having paid your passage through,there is no guarantee you will get your ticket. In procurement matters,the intention behind making procedures convoluted and centralised is not always malignant. Often,the assumption is that those at the apex of the decision-making hierarchy,particularly in the civilian bureaucracy,are likely to be more prudent,careful and better trained in procurement methods than those in the thick of operations. Delegation of powers is therefore reluctantly done and every opportunity is used (as in the present case) to show that even the limited delegation of powers is susceptible to misuse and should be subject to curbs and constraints. The CDA report is in keeping with this.
The fact is that rent-seeking behaviour gets a stimulus the more complex,difficult and centralised the procedure is,because for the buyer,there is an opportunity to demand rent at multiple stages. For the supplier,his risks increase manifold and he has to factor in the cost of paying to cross each hurdle,so he inflates the price. This leads to a classic Catch 22 situation. At the higher decision-making levels,the dishonest ones will ensure a successful transaction because of the windfall gains they can make. The honest,on the other hand,will ensure that no transaction takes place.
In the present instance,as reported,most of the alleged irregularities are because the delegation of powers and the devolution of authority is so miserly. The very concept of special powers for meeting operational emergencies is flawed,as it is an incentive to take recourse to these powers for all transactions,irrespective of the urgency,because that gives the justification for more relaxed procedures. The tendency,then,is to create an emergency even where none exists. Thus,many new rent-seeking opportunities emerge,this time within the services themselves.
How does one get out of this deadlock? Devolve clear and full decision-making authority for procurements down the chain of command. Restrict the role of the ministry to procurement of major weapon systems and platforms. Have a clear hierarchy of budget holders who are fully responsible,within their budgets,to take all decisions for achieving budgeted outcomes. Simplify procedures dramatically,moving from administrative controls and restrictions to budget-based methods of control. Enhance the level of discretion available to the decision-makers,rather than reduce or constrict it. Trust a group of professionally competent men to weigh the pros and cons of each option and take a decision they feel is in the best interests of all stakeholders. Guarantee them complete protection from allegations of misuse of trust. Distinguish between middlemen/ agents who perform a genuine service for the supplier and the deal fixers. Give the former legal recognition and allow them free and easy access to the buyers/ decision-makers,making interactions with them transparent and above board. Transition from engineering solution-based specifications to critical performance parameters,share them with potential suppliers and test product performance against these parameters. Integrate the departments of defence production and research with the department of defence; privatise defence PSUs,ordnance factories and defence labs by converting them into widely held public limited companies answerable to their shareholders. Encourage a shift from buy decisions to make and buy decisions from a customer-friendly industry. And eventually,trust the doer,not the auditor or the policeman.
The writer is a former secretary to the government who handled army procurement in the 1990s
