The Comptroller and Auditor-General of India (CAG) is auditing the financial dealings between government agencies and rice mills in eight major rice-producing States following a complaint that Rs. 200 crore in black money is generated every day as millers hide or under-report earnings from sale of paddy by-products.
“It could be a scam involving over Rs. 10 lakh crore,” says Gouri Shankar Jain, a Right to Information activist in Odisha who complained about the nexus to the CAG in August 2012. The Prime Minister’s Office, which too received his complaint, forwarded it to the CAG in February, he told The Hindu.
Confirming the audit, government sources said Mr. Jain’s complaint had been included in the investigations. By government records, Andhra Pradesh, Punjab, Chhattisgarh, Uttar Pradesh, Odisha, Haryana, Tamil Nadu and West Bengal are the top contributors to the central rice pool.
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In his first complaint to the CAG, Mr. Jain, who has been raising the issue since 2011 as part of the “Kishan Krishi Karj Mukti Andolan”, accused unscrupulous millers of hiding the income from paddy by-products (bran, husk and broken rice), in collusion with tax-assessing officials.
“It was all due to the wrong procurement policy and faulty accounting/billing system ... suspicion was aroused when we found that even though the input cost and labour charges had nearly doubled, such millers were willing to work at the 2004-05 rates,” he said.
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The Union and the State governments procure rice through the custom milled and levy rice mechanisms for the public distribution system. Under the former, government agencies get paddy from farmers at the minimum support price and give it to the mills under an agreement. Under the levy system, millers buy paddy from farmers, mill it into rice and sell it to the government.
“Under both schemes, the government collects 68 kg of parboiled or 67 kg of raw rice per 100 kg of paddy. There is no clarity on the total quantity and pricing of the rest of the 32-33 kg by-products of paddy, neither in government audited balance-sheets nor in rice millers’ audited accounts,” says Gouri Shankar Jain, a Right to Information activist in Odisha who complained about the financial dealings between government agencies and the millers to the CAG in August 2012
Under the custom milling agreement with the government, rice millers retain by-products such as bran, husk and broken rice. With the millers hiding or under-reporting earnings from the sales of these by-products and the State governments not sending claims for rice procurement along with the accounts audited by CAG-appointed auditors at the end of each season, the fraud remained undetected, he says.
“This happened because CMR [custom milled rice] rates would remain provisional, not final as required under the rules. In an RTI reply last September, the Department of Food and Public Distribution said the rate for procurement incidentals had not been finalised in most of the States,” he alleged saying he had studied the balance sheets of 2,500 rice mills,” he says.
Rice bran is used to extract oil, husk is used as fuel in power plants, and broken rice is used in breweries and to make laundry starch and products for the food, cosmetics and textile industries.