Guest column: Foodgrain ‘scam’ — a dubious ‘legacy’

After screaming headlines since last April about an alleged foodgrain scam, the issue has been given an indecent burial with the epitaph of a ‘legacy issue’. The issue surfaced when the Punjab government sought a cash credit limit (CCL) for procuring wheat, and the Reserve Bank of India (RBI) directed the lending banks to make provisions for the gap between the value of stocks and the outstanding CCL. At that time, the gap was indicated to be Rs 12,000 crore. It was widely speculated that stocks of corresponding value were missing. That is how it earned the moniker of a scam.
The Punjab government vehemently denied any wrongdoing and claimed that the stocks matched grain to grain. It also explained that the gap was entirely on account of the time lag between the lifting of stocks by the Union government and receipt of payment thereof by the state procurement agencies. The gap was then stated to be about Rs 21,000 crore. The Punjab government had also furnished details of receivables from the central government on various counts, adding to a staggering Rs 26,000 crore. Most of these receivables were on account of additional costs incurred by the Punjab procurement agencies over and above the norms, interest thereon, and pertained to a period as far back as 1994. Even at that time, it was very well known that most of such claims are dubious and are unlikely to be sanctioned by the Centre.
Besides, such claims flew in the face of the comptroller and auditor general (CAG)’s categorical observations about missing stocks, non-delivery of rice by the millers and bogus and above-norms costs incurred by the Punjab procurement agencies. However, the issue remained unresolved and on part repayment to the banks and to avoid distress to farmers — due to non-procurement of wheat — a fresh limit was sanctioned.
As usual, the issue resurfaced when Punjab sought approval for a fresh CCL for the procurement of paddy. The consortium of banks flatly denied it, until the outstanding amount in the CCL sanctioned for various crops in the past is squared up by an upfront payment. In the face of this dilemma and with the intervention of the central government and the RBI (which approved restructuring of close to Rs 30,000 crore of legacy loans), the banks are reported to have agreed to settle the Punjab food credit, after setting some terms.
The banks decided to disburse credit to Punjab for this season from October 1, on the condition that only on its settlement by the end of this year, loan for the next year will be disbursed. Also, the interest rate will not be less than the base rate. If there is a shortfall in repayment, the state and the central government will have to chip in.
While settling the issue, banks also pointed out that the mismatch between the value of stocks and the outstanding loans is a legacy issue that happened over several years and will have to be settled once for all.
Ceased to be legacy issue after 2004
To set the record straight, let it be stated that the legacy part of this issue was sorted way back in 2004, when cumulative mismatch amounting to Rs 4,500 crore was squared up by obtaining a clean loan from banks. In fairness, let it also be stated that the mismatch then was entirely on account of the procurement operations of the food and civil supplies department that formed a part of the state budget/treasury and the other four state procurement agencies were directed to square up their part of the mismatch, if any, of their own, as the government was in no way responsible for it.
In order to ensure that such a situation does not arise again, the departmental procurement operations were hived off to an independent entity christened as Pungrain, making procurement operations independent of the budget and government treasury. In addition, the procurement agencies were directed to ensure that there is no mismatch between the value of the stocks held by them and the outstanding loans, and if there is any gap the same should be fully covered by good receivable. Therefore, it ceased to be a legacy issue after 2004.
Unfortunately, the government of Punjab is not coming clean on it. Immediately after the media picked up the story of missing stocks and smelt a scam, the state government went into the denial mode and categorically declared that no stocks were missing. When this did not wash, the government attempted to explain away the mismatch, by trumping up receivables from the Centre on various counts. The readiness with which Punjab agreed to fund the whopping gap of over Rs 30,000 crore by raising a loan and settle the issue on the terms and conditions dictated to by the banks and the RBI is proof enough to show that it is no longer a legacy issue. Instead, it is an issue of mal-governance and malfeasance, if not a plain fraud.
Some questions need to be answered
In a maze of claims and counterclaims, very serious observations of the CAG on procurement operations and allegations of fraud by the opposition, truth can only be sifted by subjecting the whole gamut of procurement transactions to a third party audit. Meanwhile, some troubling questions need to be answered.
1) What explains a whopping mismatch of over Rs 30,000 crore between the value of stock held and the outstanding bank loans, especially after the inherited mismatch of Rs 4,500 crore was squared up and the procurement operations were made independent of the government budget and treasury in 2004?
2) The mismatch is obviously in the accounts of the procurement agencies, namely Pungrain, Punsup, Punjab Agro Industries Corporation, Markfed and the Punjab Warehousing Corporation. How has the state government so readily agreed to raise a huge loan on its books, burdening the yet to be born children with a debt – servicing burden of Rs 3,500 crore per annum for the next twenty years, without seeking an explanation from these agencies?
3) In the absence of any plausible explanation for this huge mismatch, have the procurement agencies misapplied, diverted or misappropriated the sale proceeds of the stocks lifted by the central government, instead of repaying the bank loans?
4) Will it not open floodgates for wrongdoing by the procurement agencies and end up providing cover to serious malpractices on the part of the procurement agencies?
5) How the mismatch that to begin with was reported to be Rs 12,000 crore has now shot up to over Rs 30,000 crore and what is the guarantee that it will not further go up tomorrow? In other words, has the quantum of mismatch been independently validated?
6) What will it entail on the part of the government of Punjab to comply with the terms and conditions that are being rightly insisted upon by the banks and the RBI now, and what will be the consequences, if it fails to do so?
7) What safeguards have been put in place to ensure that such an eventuality does not recur?
An accountable and responsible government will definitely ponder over these questions before subjecting the state to such a crippling debt burden. Failure to do so would lead one to the inescapable conclusion that a possible scam is being underwritten by dubbing it as a legacy issue.