When farmers across the country protested against not receiving good prices for their crops in June, a common complaint across states was that the central and state governments had never exerted themselves enough to buy their crops at minimum support price.

Whether it was rice or wheat, farmers pointed out that the government’s procurement infrastructure was not robust enough, leading either to long lines or to closed government procurement counters at agricultural produce markets across the country.

A report released by the Comptroller and Auditor General on Friday on the Food Corporation of India, the public sector unit charged with procuring these grains, sheds some light on why this might have been so in previous years.

Since 2011, the Comptroller and Auditor General found, the central government has released an average of only 67% per year of the food subsidy the corporation has requested, leading it to seek credit from other high-interest sources to conduct its daily business. This has led over five years to interest payments of around Rs 35,000 crore – a full third of the total subsidy of Rs 1.03 lakh crore that the corporation had asked for in 2015-16.

This is even as the auditor concluded that the corporation had not maintained adequate records, fabricated parts of its book-keeping and allowed five lakh tonnes of food grains to rot in Punjab because of the corporation’s poor planning and implementation of a scheme to get private entrepreneurs to enhance storage capacity in the state.

The subsidy gap grows

Set up in 1964, the Food Corporation of India is supposed to buy rice and wheat from farmers at minimum support price, the price promised by the government to farmers, either on its own or through state-level agencies. The corporation then stores this rice and wheat to maintain a critical food buffer for the country, and finally distributes it in the public distribution system, which provides subsidised food to underprivileged citizens.

The government of India is supposed to release 95% of the funds requested by the corporation within the same financial year. The remaining 5% is to be released after the corporation submits its accounts to Parliament.

However, in the financial years from 2011-12 to 2015-16, the government released an average of only 67% of requested funds to the corporation.

There are two reasons for this. One is that the Food Corporation of India’s expenditure on procurement has shot up by 33% in the last five years. This is largely because the central government has increased the minimum support price of wheat in this period by 24%, and not because the corporation has been procuring significantly more of either grain.

While the overall amount the government has released to the Food Corporation of India has risen, the gap between amount requested and received has not closed.

As a result, the Food Corporation of India has had to seek loans and use cash credit against interest with rates varying from 10% to 12% in order to continue procuring food grains. Since the corporation then added this interest to its subsidy claim, the government’s overall food subsidy burden increased, which, the Comptroller and Auditor General pointed out, “at least to the extent of interest paid for external financing was avoidable if timely subsidy claims were released by the Ministry.”

The total interest on these outside loans is Rs 35,000 crore. Around Rs 1,617 crore of this interest could have been avoided had various ministries and state governments also released payments on time to the corporation.

The ministry did not respond to 10 of the 11 letters the corporation sent it requesting it to issue funds through government securities or to permit it to raise bonds. Its reply to the eleventh letter was a rejection. The corporation’s predicament was made worse because a consortium of 63 banks did not permit it to access cheaper short-term loans until it had exhausted its cash credit – a higher interest fund those banks are required to set aside for the corporation.

One person handled more than 1,000 bags in a day?

The Comptroller and Auditor General also found discrepancies in how the Food Corporation of India itself functions. It found that it had fudged its books, conjured up fictitious work, and was so inefficient in how it expanded its storage capacity in Punjab that it decommissioned godowns even as it hired private players to build new ones.

As far as labour goes, the corporation seems to be hiding proxy labour, who are not on government rolls and which the corporation had committed to stop hiring, through some inventive gaming of its records.

This has led to some ludicrous outcomes.

For instance, in Dimapur, Nagaland, the corporation claimed that a group of seven labourers handled more than 8,000 bags in a single day in October 2015. That is ten times the daily norm of one person handling an average of 105 bags per day. Also that month in Dimapur, just two people earned more than Rs 2 lakh as incentives in a single month.

There are similar discrepancies in other parts of the country, with the average bags handled per person ranging from between 998 to 1,776 bags per day, according to the books.

It is not just proxy labour. The Comptroller and Auditor General also found that the corporation has been claiming to pay each individual more than it should have by, for example, recording one work as several separate tasks, misstating the distance labourers had to walk with the bags in order to drive up handling costs, and paying more incentives than it should have.

Wheat grains rot in Punjab

Finally, the auditor looked at how the Food Corporation of India has implemented the Private Entrepreneur Guarantee in Punjab, which is the largest producer of wheat in India. This scheme is supposed to create incentives for the private companies to build warehouses for the corporation.

In Punjab, the corporation was supposed to issue tenders to private players to augment its storage capacity with godowns to hold 50 lakh tonnes. As of March, additional storage capacity had been built built for 43 lakh tonnes.

Of the godowns, 165 of 192 godowns were commissioned in 2011-12. The corporation managed to take over most of these only in 2013-14. The corporation even took over large godowns that were not near railheads, as is the norm. This means that the costs of transporting grains between the godowns and other points of distribution will go up.

And even as the corporation expanded its capacity with new godowns, it also dehired godowns it had in its possession, exposing more procured grains to rain and animals.

As of March 2016, 53 lakh tonnes of wheat lay in open storage spaces, of which five lakh tonnes ended up rotting away.

Wheat rots in an open godown at Dewas, Madhya Pradesh, after a farmers' strike in June 2017 forced all agricultural markets to stay closed. Photo credit: Mridula Chari