EXTRACT FROM CHAPTER EPILOGUE OF "
CONTROL OVER PUBLIC FINANCE IN INDIA"
By. S. P. Ganguly

26.3 IRDP is an isolated instance. There will be instances galore of such failures if we make in-depth review of all aspects of our developmental projects and programmes, instead of mostly confining the reviews to financial transactions only, because apart from financial transactions by themselves, there are many others aspects which ultimately affect public finance.

27.1 Apart from human failure there may be failure of systems also. A system develops to cater to the needs of particular circumstances. If the circumstances change, the existing system may not suit the new circumstances. We inherited our administrative system from Britishers, who had designed it to safeguard their interest, particularly because they had to depend mostly on us to work the system. Thus the system that we inherited was excellent so far as safeguarding financial transactions which were concentrated in few places and meant for mainly administrative purposes. After independence the circumstances vastly changed with more emphasis on developmental expenditure. We failed to update the system to meet the needs of the changed circumstances. For example, consequent on nationalisation of banks, there was great expansion of the banking system with sudden increase of the number of public sector bank branches, many of them even in remote rural areas. This was needed to make the banks active participants in the developmental activities in the country. The system of regulation of banking which was prevalent before such expansion of banking activities was not changed to meet the new circumstances. As a result, the intensity of regulatory function and inspection of banks by the Reserve Bank of India perhaps may not have been possible to be maintained. On the other hand, internal inspection and regulatory function of the respective banks perhaps did not also develop to take care of the large number of new branches, many of which were in rural areas. As a result, it is alleged, there was serious system failures which are stated to be the main reasons for the multi-crore rupees scam in the banking industry in the recent past.

27.2 This is only one area. There are many such areas where we failed to update the system to cater for the changed circumstances and which adversely affected public finance.

28.1 Apart from human failure and system failure mentioned earlier, the other factor which affects executive control over public finance in a major way is corruption. Speaking in a general way, corruption, in the context to public finance, is acceptance of illegal gratification by misusing official position in granting an undue favour which affects public finance. Sometimes one is not even aware where the corruption starts and how exactly it affects public finance, the link being very obscure or tenuous. For example, before Diwali one may find cars belonging to companies or business houses loaded with packets of sweets or dry-fruits or other gifts are doing arounds the Government residential colonies for distributing them at select houses, which is apparently innocuous or too small a matter to be taken notice of. But then the question remains why these gifts have gone only to a few select houses and not all the houses in the colony ! A critical look at the selection of houses for distribution of these small gifts will point out that the residents of these houses are in positions which may be of use to the distributors of the gifts, say for example, in an economic Ministry or an office subordinate to an economic Ministry. The purpose behind distribution of such gifts obviously is to gain or renew acquaintance or approach, which may be of use some time in future. One may argue is he or she purchasable with a packet of sweets or dry-fruits! But then, has he or she asked himself/herself whether the same gift packet would have come had he/she been in another position, say in the Ministry of Education, or Department of Social Welfare. Let us also look at it from a different angle. A single gift packet may not be of any significant value. But the total cost of all such gift packets distributed at least twice a year by all such companies, business houses, contractors, traders, etc., is quite substantial. This amount would have contributed to their profit and thus inflated the amount of tax payable by them. In this way, these gift packets affect public finance, may be in a minuscule way. There are people who will laugh at this proposition. But then, as stated before, more often one does not even ponder over the origin of corruption. However, the very purpose of writing this is to just indicate how tolerant society has gradually become to corruption. A few other such small things (!) which have perhaps come to be tolerated are invitation to expensive dinners and cocktail parties in expensive hotels, arrangements for free transports, etc.

28.2 Corruption had spread its tentacles in the Indian society in a perceptible way during the Second World Way days. It had affected the bureaucracy even at that time, but did not reach much higher level. In the recent years, however, allegations and counter-allegations about `scams', `kickbacks' etc., involving huge amounts, are being raised both inside the Parliament and outside, which implicate even the decision making process. The post-independence polity has taken such a turn that all the political parties are alleged to be dependent on contributions from business houses, companies, traders, contractors, etc., in a big way, whichever party is in power being the alleged recipient of the biggest share. As a result, it is alleged, the decision making process is affected in granting undue favour by whichever party is in power to the contributors of the funds. Such concessions affect public finance in the shape of excess payments for services or lesser collection of dues to Government. The moneys alleged to be contributed to the political parties are mostly unaccounted for: had they been accounted for, there would have been more receipts in public finance in the shape of taxes on profits. Besides, such huge amounts of unaccounted for money add to the inflationary conditions in the country. These allegations and counter-allegations about `scams', `kick-backs' have reached a serious proportion. It is high time all right thinking people in different political parties sit together and put an end to this practice. Only then will it be possible to make serious attempts to eradicate corruption from other spheres.

29. The other areas inter alia which invite attention for better management of public finance are :

• Accuracy is sine qua non for budgeting. Each year, the Comptroller and Auditor General points out a number of cases in which there have been savings and excesses under different Demands for Grants. The excesses require regularisation by Parliament on the basis of the recommendations of the Public Accounts committee (paragraph 24.2.3) and, as such, come under scrutiny. The cases of savings are usually not subjected to such scrutiny. But the cases of savings are no less reprehensible, as over estimation in a demand for Grant in which the saving has occurred is responsible for lesser or no provision for another important service or scheme.

• There should be a stop to the window dressing of the budget and accounts to depict a picture, which is far from the reality.
  
  For example, a tendency is discernible to provide for lesser expenditure on capital account to show lesser budgetary deficit, in an attempt to camouflage an increase in Revenue Deficit due to increase in revenue expenditure as compared to revenue receipts. In reality, however, the lesser budgetary deficit in such an event is not indicative of any improvement in the financial health of the country; rather the increase in revenue deficit is harmful for it.
  
  Similarly, if the loan granted to a public sector unit is converted into share capital to show its financial position better, it does not in any way improve its working. With the conversion of the loan into share capital, its liability to repay the loan and interest thereon is extinguished. As such, its accounts will show better financial results, which is not the real position. On the other hand, public finance is affected due to non-repayment of loan and interest which would have been otherwise payable by the public sector unit.
  
  These are only illustrative and not exhaustive examples of how window dressing of budget and accounts is sometimes done.
  

• As mentioned earlier, many of the Demands for Grants gets approved by the Lok Sabha without any discussion, due to lack of time for discussions of all the Demands for Grants. It is for consideration whether some way may be devised so that each of the Demands for Grants comes under discussions even if for a limited time, within the overall time limit, if necessary by subjecting them to detailed scrutiny by several small groups of Lok Sabha members outside the Parliament's working hours.

• With the increase in developmental activities Government transactions have increased enormously over the years. As a result, the attention of the Indian Audit and Accounts Department has naturally been more on efficiency-cum-performance audit rather than on regularity audit. Besides, due to the developmental activities, the number of field offices of various departments and their spread have increased making it perhaps difficult for the Indian Audit and Accounts Department to arrange for their audit with the same intensity and periodicity which it followed earlier. It is true, regularity audit discloses irregularities involving small amounts, but this is also essential for maintaining the financial discipline. If a large number of such irregularities involving small amounts remain undetected, an attitude of `nothing happens' is bound to grow in the bureaucracy leading to more and more of such irregularities. If over the years it has been found that it is not possible for the Indian Audit and Accounts Department to conduct regularity audit with the earlier intensity and periodicity, the alternative may be to strengthen internal audit in those departments where it exists or to introduce internal audit in other departments, where it does not exist.

• Ideally, the Executive should accept Audit as a friend and treat its criticisms in right spirit. In fact, if the executive attends promptly to the irregularities pointed by Audit and takes action against the delinquent officials in time that will go a long way in maintaining financial discipline, which should be the aim of both the Executive and Audit. Unfortunately, the Executive in India has not been able to view Audit as a friend. Audit is treated by the Executive as a stumbling block, if not an enemy. In most cases, audit objections, therefore, remain unattended. The bias against Audit is sometimes so intense that the Executive brazenly ventures in defending an indefensible case even at the stage when the matter is under consideration of the Public Accounts Committee. This will be evident from the following extract, from the observations of R.R. Morarka, Ex-chairman, Public Accounts Committee (1962-64) in his article, `P.A.C.-How to Make It More Effective' published in the Golden Jubilee (1921-1971) Souvenir of the Public Accounts Committee:
  
  "But, in any case, there is no room for indefensible defence, which is put up today by the Secretaries and Departmental Heads appearing before the P.A.C. It has been found that even in admittedly indefensible cases, officials as high as the Secretaries would come before the Committee and consider it their duty to defend these transactions. It is difficult to imagine that such highly-trained and experienced senior officers would not realise the mistake of their subordinates. It is still more difficult to understand why seasoned and loyal officers should go to such lengths to defend the delinquent officers.
  
  No doubt, the senior officers, as stated earlier, are responsible for the transactions in their Departments and they should also give protection to their juniors. But a line must be drawn between cases involving bona fide mistake or errors of judgement and those irregularities involving corruption, malafide, malpractice, negligence or repetition of the same type of irregularities. In fact, the stout detence which is often put up by the departmental heads, indirectly encourages the officers in committing irregularities, which the P.A.C. is keen to root out.
  
  At the risk of repetition, I would say that the executive officers must be given all protection which they deserve for their bona fide actions, but in the case of questionable transactions, the Secretary or the Departmental Head should consider himself equally responsible and duly bound to put the facts before the PAC and Parliament, as his loyalty to the cause should be certainly higher than that to his colleagues or to an individual."
  
  The above observations of an ex-chairman of the Public Accounts Committee are equally applicable to the Executive in its dealing with Audit objections.

• Lastly, there is urgent need for intensifying the process of imparting training to the members of bureaucracy at all levels in constitutional provisions, laws, rules, procedures, etc., relating to public finance to not only guard against human failures and system failures but also to imbibe in them the need for financial disciplines in national interest.

For example, most of the heads of departments these days are technocrats. With the enormous increase in financial transactions in their departments, it has become necessary for them, for proper financial administration, to be broadly acquainted with the constitutional provisions, laws, rules, procedures etc. relating to public finance, instead of being completely dependent on their finance and accounts officers.

Again much of the functions of the Treasury Officer are now performed by a Manager of a branch of a public sector bank entrusted with Government transactions. The Manager of the branch of such a Bank does not have the training and experience of a Treasury Officer. It is, therefore, necessary that such Bank Manager are given appropriate training for dealing with Government transactions.

These instances are only illustrative and not exhaustive.

30. Gone are days, when the transactions relating to public finance could be left to a few experts in the field. Public finance has become now a subject of much wider interest.