The Comptroller and Auditor General of India (CAG) has been in limelight recently for his report on the irregularities and loss of revenue to the Central Exchequer in allotment of spectrum licences. Public awareness and appreciation of the role of CAG, especially in the media, is to be welcomed.

As the supreme auditor of the government, it is his responsibility to check that collection of revenue and spending of public money is done properly according to rules and regulations. It is a creditable achievement to unravel all the ramifications of this complex transaction and bring out a comprehensive report without fear or favour. This is time to recognise the wider role CAG can play in the larger context of economic development and fiscal consolidation.

On behalf of Parliament and the public, CAG is responsible to check that public revenue is collected and public expenditure is incurred in the most efficient and lawful manner. India is a welfare state and the government is implementing a number of schemes and projects under the five-year plans, resorting to borrowing. The enormity and complexity of government budget throws a special burden on CAG. The budget estimate of revenue receipts for the current year is Rs.6.80 lakh crore and total expenditure Rs.11 lakh crore financed through substantial borrowing. The CAG's role extends to see that the budget is implemented to achieve the government's objective of promoting development with fiscal prudence. Two areas for such non-routine audit can be identified — ouput/outcome budget and fiscal responsibility legislation.

One major factor in public expenditure of a modern welfare state is the wide range and complexity of functions, schemes and projects undertaken by the government to promote all inclusive economic growth. This has altered the budget formulation in a significant way. The budget is no longer a mere financial budget. Now the emphasis is on what is expected from the large scale spending. Efficiency and effectiveness became the key words. The physical output from the financial input is reflected in the budget. The country has followed this world-wide trend by introducing budgetary reforms. The annual performance budget was introduced to highlight financial and physical aspects of major schemes and programmes of all ministries dealing with development activities. Even after 25 years, this did not bring any significant improvement in efficiency and effectiveness in public expenditure. Presenting the Central budget for 2005-06, the then Finance Minister announced putting in place a mechanism to measure the development outcomes of all major programmes to ensure that “programmes and schemes are not allowed to continue from one Plan period to another without an independent and in-depth evaluation.''

Outcome budget

The output/outcome budget is a complex task. It involves the following criteria.

Defining and measuring the output and the outcome from expenditure.

The output refers to physical measure of production and the outcomes deal with the effect of the policy and impact (Example: assets from expenditure on irrigation projects are dams and canals and the outcome is the increase in crop production and the efficient use of water. School and hospital buildings are the assets to be completed within timeframe and cost estimates, but the outcome is the quality of education and medical care).

Realistic cost assumptions to link financial budget provision with targeted output/outcome;

Designing a suitable system of financial and physical data;

System for internal check, monitoring and corrective action when needed; and

Presenting an annual analytical statement — comparing the actual financial and physical performance with that of budget estimates and targets.

If the new outcome budget is to fare better than the earlier performance budget and become a practical management tool, a special CAG audit of a few select cases will throw up the problems in adhering to the criteria mentioned above and any system weakness.

Omission of substantial non-Plan expenditure such as operation of schools, hospitals, irrigation projects from the output/outcome budget is a major flaw.

Expenditure on public private partnership (PPP) and direct transfer of funds to non-government bodies do not come under this output/outcome discipline. CAG can marshal data to draw attention to this lacuna in expenditure management.

Fiscal prudence

Another important subject for the audit scanner is action or rather non-action to inculcate fiscal prudence in government expenditure. A historic landmark in fiscal history is the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, by Parliament. It prescribes targets and ceilings for the budget deficits and thereby borrowings by government to finance expenditure. This is a commendable and timely legislation to control spending on non-priority and non-productive areas by taking loans. It also calls for a long-term view of fiscal prudence and sustainable public debt through Medium Term Fiscal Plan (MTFP) beyond the annual budget. But the implementation of this Act suffers from serious defects. Achievement of quantitative deficit targets is taken an end in itself and not as a means for achieving fiscal prudence. Deficit management has been done with the help of buoyancy in revenue, especially through disinvestment and revenue from spectrum auctions, off budget items and other means. Reform in expenditure policy and management has been put on the backburner. The MTFP presented with the annual budget is not supported by disaggregated data on revenue and expenditure projections and the underlying assumptions. There is no road map based on identification of the numerous specific problems in budget formulation, revenue mobilisation and expenditure policy and implementation with a time-bound action plan. An in-depth special audit by CAG of the implementation of the FRBM Act will be timely. CAG has the power and access to data for doing this. The Comptroller and Auditor General can recruit any technical staff needed for this non-routine audit (already an officer of Indian Economic Service has been taken on deputation). If this audit is done with a proper perspective, it can dispel the mistaken negative impression of audit as only a fault finder of individual irregularities.


The enormity and complexity of government budget throw a special burden on CAG.