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Should private sector firms be subject to RTI & CAG? by Vinayak Chatterjee

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By Vinayak Chatterjee

In principle, private companies are, and must be, answerable to their shareholders and not the general public. It is shareholders who should be monitoring the way business is run and capital utilised. The functioning of the boards of companies in a thoroughly professional manner is thus the real need.

Citizen’s concerns on legal and statutory compliances are well addressed through the government’s multifarious departments and authorities which have all kinds of powers for detailed oversight into private sector functioning. Some would argue that there is actually excess surveillance of multiple aspects ranging from pollution and labour to insider-trading and boilers.

On the issue of governance, there are again a plethora of institutions, from sector regulators to auditors to committees of boards, who are supposed to keep track of private sector companies and their governance standards. In fact, we are constantly adding new compliance requirements, from other backward class quotas to corporate social responsibility.

Crucially, private sector companies operate in a competitive environment. All the data regarding various facets of the business are thus extremely sensitive to being made available to competitors. Thus, an RTI petition asking for specific data could well be ill-intentioned and counter-productive in a milieu where business confidentiality is the established paradigm.

As we debate this issue about private sector companies, it is also pertinent to ask, “What is a private sector company today?” About 10-15% of private sector output comes from large corporations. The rest comes from a humongous number of small and medium enterprises.

And we are not talking about factories and workshops alone. We are talking about services and even those businesses running under the Shops and Establishment Act. Most of them are in the unorganised sector and do not operate in corporate formats. Is not all of this private sector? Even if people did one RTI for every 100 companies, the sheer numbers would be overwhelming! And to what purpose?

In today’s world of blurred and inter-meshing capital markets, the distinction between private and public sector is getting more and more diffused. In today’s world of blurred and inter-meshing capital markets, the distinction between private and public sector is getting more and more diffused. There are a range of investors in a large private sector company, from public institutional investors, to sovereign wealth funds.

PC Chidambaram, when he was the finance minister, at a Larsen & Toubro function lauded the company for being a unique constituent of the “national sector”, neither private nor public! When you look at this kind of capital structuring, it becomes very difficult to define what is public and what is private.

The accepted definition anyway is that a company where the private sector shareholding is greater than 51% is “private” and outside the ambit of inspections and audits by governmental bodies. Clearly, the grey area is public-private partnerships (PPP) today. Most PPPs technically fall under the ambit of private sector.

In its foreword to the document, ‘Public Auditing Guidelines for PPP Projects’, the Comptroller and Auditor General (CAG) argued that PPP requires official auditing. Critics of CAG would point out that it is a 150-year-old institution with roughly 50,000 officers and staff that carry out about 60,000 audits every year; and that it is already creaking and over-burdened.

The executive and legislative arms of the government, including the Public Accounts Committee and the Committee on Public Undertakings, are notorious for slothful responses and tardy reaction to CAG reports. Thus, adding PPPs to the list of CAG tasks is quite meaningless. However, in recent history, most would agree that CAG has been able to significantly make a difference in probity in public life.

My submission is that in the normal course of business, PPPs should not be subjected to CAG monitoring or RTI. However, in specific cases when there are issues concerning ‘public good’, government should specifically authorise CAG to investigate.

(The author is chairman, Feedback Venturesthe country’s leading infrastructure consultancy)

(The Article first published in Economic Times)

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Posted by on Oct 27 2011. Filed under Columnists. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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