CAG audit of telecos may open Pandora's box

The Delhi High Court ruling that the Comptroller and Auditor General of India (CAG) can look into the accounts of the private telecom firms because exchequer revenue is involved in it, may open a Pandora's box and lead to similar demands for other sectors, although that may not be the intent or spirit behind the judgment, analysts and industry associations fear.

"As far as audit through CAG is concerned, we believe the CAG was constituted to be answerable to parliament only in respect of businesses which are owned by the government," said Sidharth Birla, president of industry lobby FICCI.

"Therefore, to my mind, there is no place for CAG interfering into a private company's books," Birla said.

The Delhi High Court ruled Monday that the CAG can look into the receipts of the private telecom firms as they have revenue sharing arrangements with the government.

Ankita Somani, research analyst at Angel Broking, said the judgment could have wider impact on other sectors as all companies' revenues are linked to the Consolidated Fund.

Companies and individuals contribute to the Consolidated Fund of India by paying in the form of taxes and royalties. Any under-reporting will result in a loss of revenue to the exchequer.

The catch, of course, warn experts, is that if one were to go by this argument, the CAG should get authority to audit the accounts of any company.

"Telecom companies like other companies are already being audited by independent auditors. So, CAG will be doing the same thing," Somani told IANS.

She said the CAG audit would not have any substantial impact on the revenues to the government.

However, some analysts argue that the judgment need not be seen as an interference in the functioning of the private telecom firms.

Moreover, they clarify, the CAG's access to the private telecom firms' accounts will be limited. The government auditors are not given access or authorised to comment on expenditure and other dealings of the telecom companies.

In its ruling, the Delhi High Court has clearly said the "audit has to be only an audit pertaining to the receipts and no more". The government auditor is not given access or allowed to look into expenditure and other dealings of the private telecom firms.
"CAG has power to audit all the receipts which go into the consolidated funds of India," said Gaurang Kanth, an advocate who represented the CAG in the high court.
But others do not entirely agree.

"The main reason CAG has been asked to look into the revenue portion only is that there were allegations that the telecom operators were understating revenues so that they can save money which otherwise they have to give out as licence and various other fees," Rishi Tejpal, research analyst with technology research and advisory firm Gartner, told IANS.

Private telecom companies are required to pay three to eight percent of their revenue as spectrum usage charges, depending on how much spectrum they use.

The companies are also required to pay to the government six to eight percent of their revenue as licence fees.

"The government is concerned about the loss of revenue to it because of understatement of revenues by telecom operators," he added.

Mahesh Uppal, director of a telecom consultancy firm Com First, said the purpose of the ruling is to ensure that the revenues of the exchequer were not hurt.

"Typically when an audit is done by the CAG of any government company, it sees whether the money has been spent properly by the public agencies," Uppal told IANS.
"But that is not the case with private companies here. The justification here is exchequer revenue are impacted because the companies are paying revenue as fees, which obviously concerns the government," he said.