CAG in the spotlight: What are the issues?

The Supreme Court on Monday sought the Centre’s response on a Public Interest Litigation (PIL) challenging the current practice of appointing the Comptroller and Auditor General of India (CAG) – India’s apex audit body. The PIL argues that the existing executive-controlled process violates the Constitution and seeks an independent selection committee for appointing CAG. 

This comes amid recent CAG reports, such as on the now-scrapped Delhi excise policy and on the Functioning of Compensatory Afforestation Fund Management and Planning Authority (CAMPA), which have highlighted irregularities in public fund management and led to debates about the CAG’s independence and its relationship with the executive branch.

But why have concerns about political or executive influence over CAG appointments been raised? What could be possible ways to address this? 

CAG reports raise important questions 

Recent reports by the CAG have highlighted potential irregularities in the management of public funds by various governments. For instance, according to its report, the Delhi exchequer incurred a loss of Rs 2,002 crore because of issues in formulating and implementing the excise policy in 2021-22.

In addition to failures in plugging revenue leakages, the report on Performance Audit on Regulation and Supply of Liquor in Delhi highlighted discrepancies in the awarding of licenses, inadequate quality control, lack of transparency, and deficiencies in the excise policy.

Similarly, another report on the CAMPA in Uttarakhand identified issues like diversion of forest land, delays in the execution of compensatory afforestation activities, and misuse of afforestation funds for “inadmissible purposes”. 

Setting aside the political controversies sparked by such reports, they raise important questions about the functioning of the CAG and its relation with the executive branch. In the case of Delhi, questions were raised over the delay in laying the report in the Assembly, while the report on Uttarakhand reignited the old debate about the CAG encroaching on the financial autonomy of the executive branch. 

Similarly, an earlier report on off-budget borrowing by the Kerala Infrastructure Investment Fund Board led to controversy over fiscal federalism. 

CAG as a key pillar of financial administration 

To understand these tensions, let’s look at the historical evolution of the CAG, which dates back to the colonial period when it was originally called Accountant General to the Government of India in 1858. The Montague-Chelmsford Reforms of 1919 made it independent of the government, formally recognising the Auditor General statutorily. The Government of India Act 1935 further strengthened the office.  

Often referred to as the ‘watchdog of the public purse’, the CAG oversees the public finance of both the Union and state governments. Parliamentary control over public money is exercised through the scrutiny of audit reports submitted by the CAG. 

The CAG has significant powers to audit and expose irregularities in financial administration, which often lead to political controversies. For instance, CAG reports on the 2G spectrum allocation and financial mismanagement during the Commonwealth Games had huge political implications. 

Moreover, the CAG is neither an officer of Parliament nor a functionary of government, rather it is an independent Constitutional body. As one of the key pillars of financial administration in the country, the CAG is governed by the provisions of the Constitution and the Comptroller and Auditor General’s (Duties, Powers, and Conditions of Service) Act, 1971.

Articles 148 to 151 in part V of the Constitution are on the appointment, duties, and audit reports of the auditor general.

Article 148 – It states that the CAG shall be appointed by the President of India, and shall be removed from the office on grounds and in a manner similar to that of a Supreme Court judge. To ensure the independence of the body, the Constitution stipulates that the CAG is ineligible for any further office after he has ceased to hold his office.

The administrative expenses, including salary and allowance, are charged upon the consolidated fund of India.  

Article 149 – The article states that the CAG is an auditor of both the Union and state governments, and it can perform duties in relation to the accounts of any authority prescribed under any law made by Parliament. Later, the duties and powers of the CAG were further elaborated in the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971.  

Moreover, there are three types of audits conducted by the CAG, i.e. compliance audit, performance audit, and financial audit. The Indian Audit and Accounts Department is the technical agency that enables the CAG to perform these duties. Although the Constitution envisaged the role of both auditor-general and comptroller, in practice, the CAG is not fulfilling the role of comptroller. 

Article 151 – It prescribes that CAG reports be submitted to the President or Governor, who then lays them before Parliament or state legislature. However, neither the Constitution nor the 1971 Act specifies a time limit for governments to table the CAG report in legislatures.

Apart from the 1971 Act, there are other statutes like the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 expand the functions of this Constitutional body. However, notwithstanding this evolving mandate, the body has also drawn criticism too.

What are the main criticisms of CAG? 

Paul H Appleby, in his reports on public administration in India, criticised the replication of the colonial auditing framework in independent India. He questioned the CAG for getting into trivial details of administration without making judgements about what is important, useful, and appropriate for a given function. Appleby apprehended that such auditing practices could have a repressive influence on the administration and might paralyse bureaucrats’ willingness to make decisions and take action. 

For instance, a CAG report flagged irregularities in the procurement of PPE kits during the pandemic in Kerala. The report alleged that the kits were purchased at rates 300% higher than the prescribed price. However, the government defended the procurement on the ground of the exigency of the health crisis when the lives of people were prioritised over rules. 

Although this disagreement highlights an ongoing debate between the executive and auditors, they are yet to agree on who is better equipped to judge administrative decisions.

Appleby’s criticism also stemmed from his belief that auditors usually lack sufficient understanding of good administration. Although he recommended involving private auditing firms, he was categorical in stating that auditors – CAG or private auditors – should not judge public interest, policy, and administration.   

CAG remains a crucial institution

Despite this, the CAG remains a crucial institution in India’s democratic framework, acting as an agent of Parliament and ensuring the accountability of the executive to the legislature in matters of public finance. It plays a pivotal role in the functioning of financial committees of Parliament and state legislatures. 

The Public Accounts Committee (PAC) and Committee on Public Undertakings (CoPU) examine the reports of CAG submitted to Parliament. In other words, reports of the CAG form the basis of the functioning of financial committees, with the CAG often called the guide, friend, and philosopher of PAC. 

However, PAC’s inherent limitations – like its short tenure (one year), lack of technical expertise, and advisory nature of its recommendation – appear to hinder effective parliamentary control over the executive, despite receiving valuable inputs from the CAG. These constraints, along with broader issues between the CAG and the executive, highlight the need for a balanced approach

How to address tensions between CAG and the executive

The conflict between the CAG and the executive can be addressed by clearly defining the functions of the CAG without undermining the existing constitutional and legal framework. While the CAG’s powers of financial scrutiny are important, they should not compromise the autonomy of administrators, and the executive’s decision-making should remain free from undue external interference.

Those who are criticising the CAG for keeping its functions confined to post-facto often overlook the fact that India has other effective legislative mechanisms in place to ensure accountability in financial administration before public funds are spent. Additionally, prescribing a time limit for laying CAG reports in legislatures may help reduce delays in legislative scrutiny. 

P Sesh Kumar, former Director General of the CAG, in his book – CAG Ensuring Accountability Amidst Controversies: An Inside View – called for structural reforms in India’s apex constitutional audit body. He highlighted the declining quantity and quality of CAG reports in recent years weakened its impact. 

To enhance transparency and accountability, Sesh Kumar proposed an independent committee for the selection of the CAG, a mechanism to audit the apex audit body, a multimember structure, and Constitutional amendments corresponding to these reforms.   

Moreover, the CAG is also reportedly accused of disrupting fiscal federalism in India by using the body against state governments. Making a separate Constitutional auditing body for states like public service commissions may help to overcome this criticism.

Federal countries like Australia, Canada, and the US have separate auditor generals for union and provincial governments. Proposals like an independent appointment committee and multi-member structure can address similar criticisms.

Post Read Questions

Which constitutional article governs the appointment of the CAG, and how does the PIL regarding the appointment of the CAG argue that the current process violates it?

What recent CAG reports have sparked debates about its independence and relationship with the executive branch?

What irregularities were highlighted in the CAG’s report on Delhi’s excise policy for 2021-22?

What were Paul H. Appleby’s main criticisms of the CAG in his reports on Indian administration?

(Dileep P Chandran is an Assistant Professor at the department of Political Science in University of Calicut, Kerala.)  

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