CAG auditing private telecom firms may be a step in right direction

In the third week of April, the Supreme Court took a decision that came as a rude shock to companies working with the government on a revenue sharing basis. The apex court allowed the Comptroller and Auditor General of India (CAG) to audit the account books of private telecom companies (telcos) who share part of their revenues with the government for the use of spectrum, which is public property.

In its judgment, the apex court said that the CAG can examine the statement of accounts of private telcos to ascertain that there is no loss to the exchequer. It is now believed that the decision could have far-reaching impact on businesses which have been given natural resources - such as mines and hydrocarbons - by the government. Also, it is likely to impact companies in the infrastructure sector working with the government on a public-private partnership model.

The judgment has clearly upset Cellular Operators Association of India (COAI), the industry lobby representing GSM operators including Bharti Airtel, Vodafone and Idea. "We already have four regulators closely monitoring our operations. It will add to the cost burden for the telcos. Also, a company will have to allocate its manpower resource to assist CAG in auditing which would have otherwise been involved in the regular day job," says Rajan S. Mathews, Director General, COAI.

The respite, according to Mathews, is that CAG can only audit the revenue-sharing part. "They cannot audit expenses, internal policy matters, marketing initiatives or decisions related to discounts," he adds.

The decision could actually augur well for the private sector companies, say some experts. The auditing by CAG will improve the corporate governance standards of private firms and make them more transparent, they say. "I think it's a step in the right direction. Globally, the regulatory and corporate governance requirements are of the highest order. I think we are moving in that direction," says L. Madhusudhan Rao, Chairman of Lanco Infratech, a Gurgaon-based power, mining and construction company.

But it is important to know how this decision will be executed, according to Mukesh Butani, Managing Partner at BMR Advisors. "CAG should not use this as a weapon for witch hunting," he says.