Govt Agency Confirms Centre's Auctions Allowed Millers To Corner Pulses Meant For The Poor

Findings by the National Productivity Council point out that the terms of the auctions allowed millers to fleece the government and supply poor-quality pulses.

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New Delhi: The Union government’s auctions to provide pulses to the poor and armed forces, worth more than Rs 4,600 crore, were rigged to benefit a few big millers, findings from the National Productivity Council, headed by commerce minister Piyush Goyal, have revealed.

The council presented its preliminary findings on October 11, 2021, to a committee overseeing the price stabilisation of pulses and other commodities in India. The Reporters’ Collective accessed this presentation.

The council is an autonomous government research agency that studied the auctions held to pick millers who turn raw pulses into their ready-to-cook form and distribute them. The council found that the terms of these auctions allowed the millers to fleece the government of tonnes of pulses and sell them at a profit in the open market, as well as allowing them to supply poor quality pulses.

The National Agricultural Cooperative Marketing Federation (NAFED), under the Union agriculture ministry, developed the auction method that the council discovered was helping millers make a fortune. The council has recommended that NAFED scrap the auction process, which has been on since 2018.

In  an earlier investigation, the Reporters’ Collective had exposed how NAFED had allowed millers to swindle tonnes of pulses meant for the poor by rewriting the conventional auction procedures the government uses. 

The council’s preliminary findings, which we got hold of through Right to Information (RTI) queries, officially confirm what we had reported.

Other records accessed by the Collective show that the government ignored the findings that the council had shared with it in October 2021. Over the next two months, the government let NAFED auction 137,509 metric tonnes of pulses worth Rs 875.47 crore using the same auction method.

After the Collective’s expose, NAFED has now stopped the milling of pulses for welfare schemes. Instead, the Consumer Affairs Department (DoCA) decided in February this year to distribute only raw pulses, which the states can mill themselves.

NAFED, the consumer affairs Ministry and the Ministry of Agriculture and Farmers’ Welfare haven’t responded to our questions.

Also read: Beyond State Control and Free Market, Shaping a New Model for Agricultural Reforms

The modus operandi

In 2015, in an effort to encourage farmers to produce more pulses and overcome the dal crunch, the government had promised to buy up farmers’ pulses. As pulses began to pile up with the government, NAFED proposed, in 2017, to give away ready-to-cook pulses under various welfare schemes. For that, NAFED set up an auction platform where millers could bid to win contracts to process raw pulses and deliver them to states.

As the Collective exposed in December 2021, NAFED promoted an unusual method for how contracts were to be meted out which favoured some millers over others. Usually, the government gives work contracts to the lowest bidder. Instead, NAFED asked millers to quote the highest out-turn ratio (OTR) to process raw pulses.

OTR is a term for the ratio of quantity of the final ready-to-cook pulses a miller churns out to the raw commodity they receive.

For example, a miller could ask for 100 kg of raw pulses and mill it to produce 80 kg of processed dal and about 10 kg of husk as a by-product. The miller then gives back only 70 kg of the processed dal to the government. For the government, the OTR would then work out to 70 and the extra 10 kg of dal would account for the miller’s transportation and other costs, as well as their profit. 

The Collective had exposed how millers made a killing: NAFED’s auctions did not have a lower limit on the OTR a miller can bid. The lower the OTR, the higher the profit. Effectively, NAFED failed to limit millers’ take-away in the business.

NAFED wasn’t, however, short of warnings. The comptroller and auditor general (CAG) of India had previously red-flagged OTR-based bidding in rice milling in Andhra Pradesh, where it found that millers had caused a loss of Rs 1,195 crore to the exchequer. At least Andhra Pradesh had a floor OTR. NAFED scaled up the auction method to the national level in pulses auctions and didn’t bother to prescribe a minimum OTR.

Also read: Centre’s Opaque Auction Rules for Pulses Helped Millers Profit at Expense of Government

Government confirms government scam

NAFED has been running the now-officially-discredited bidding system since 2018. It was used while supplying pulses under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) – a scheme run by the Consumer Affairs Ministry headed by Goyal, who also heads the National Productivity Council that now found the method faulty.

The council was tasked by the government to assess how effective its Price Stabilisation Fund scheme for pulses had been. The scheme, launched in 2015, is aimed at stabilising pulse prices through market intervention, primarily by building buffer stocks.

The council, based on its study of pulse prices and their demand in the country between 2016-17 and 2019-20, found that the OTR auctions allow millers to retain a “substantial quantity of procured pulses”.  

NPC warned that OTR auctions allow millers to corner large quantities of pulses. Source: NPC Presentation accessed via RTI

This meant that the large quantities of pulses the millers kept for their own commercial use was more than the fair amount they otherwise should have been allowed to retain under a transparent auction method. By letting millers do this, NAFED was permitting them to make unchecked profits.

Further, as part of its ‘observations and recommendations’, the council said, “The OTR system of milling of pulses may be discouraged and a uniform OTR of different pulses may be fixed along with quality specifications. The dal millers may be paid the milling charges after taking into consideration the cost of the by-product (husk)”.

‘Observations and Recommendations from the council’s presentation. Source: NPC Presentation accessed via RTI

The auction method the council recommended is simpler as it involves the standard process of picking the bidder with well-defined quality standards and exchequer-friendly OTR. Under NAFED’s current system, the OTRs that millers quote are approved by an internal committee. The details of internal committee’s meetings are kept secret and attempts to access the information through RTI are stonewalled by NAFED, citing a court order that exempted it from the transparency law.

Another key finding is that the auction is designed to favour only a few big millers. The council also called for a review of the procedure for picking pulse millers in states. “At present, only a few big dal millers are engaged in the milling of NAFED pulses,” it said.

It blamed NAFED for excluding small players from the milling business. “The present lot size of 100 MT prohibits small dal millers (MSME units) to participate in the milling operations,” the findings said. It recommended lowering the lot sizes to 25 tonnes to make room for smaller millers and traders.

The Collective analysed OTR-based auctions from NAFED’s auction archives to test the council’s findings. Of the 185 auctions held since April 2018 for chana dal (split chickpea lentils), only 35 were for pulse quantities less than 100 tonnes. Just two were of 25 tonnes or less.

The data is worse for tur dal (split pigeon pea). Just 37 of the 495 auctions held by NAFED were for less than 100 tonnes. Only five had 25 tonnes or less.

Even after the council advised NAFED to mend its ways in its meeting with officials last October, only two of the 13 auctions held till mid-December last year for the two commodities we analysed dealt with pulse quantities of less than 100 MT.

NAFED, documents show, has around 320 empanelled millers. In comparison, some estimates peg the total number of dal mills in the country at 7,000. Most of them are small mills employing traditional technology. By allowing only a few big players, NAFED shut the door on most of millers.

The Collective interviewed a pulses miller who has participated in the OTR auctions, including the ones conducted under the PMGKAY. “NAFED’s auction terms are designed to keep some of us out of its auctions. For example, they’ll tweak the criteria required for minimum turnover of the company or they’ll restrict participation to millers from one particular state only,” said the miller, who sought anonymity.

“Some of their tenders are open to all to participate. But sometimes, they’re directed by certain people …to include some conditions that favour only some millers. I can give you an example. Last year, they floated Army Purchase Organisation (APO) tenders. In these tenders, they said only those millers who have already participated in APO tenders through NAFED can participate. This condition worked against me. This restricts competition and millers then bid very low OTRs. Work that can be done in 80-85% OTR will now see 65-70% OTR,” he added. The Collective could not independently verify this claim. 

Poor quality checks

The council’s findings explain why states complained of inedible, rotten, bird droppings-tainted pulses being supplied under the Modi government’s flagship relief scheme during the pandemic. The Collective has reported on these complaints. This was after NAFED had made millers responsible for the quality of pulses supplied.

In a letter addressed to the DoCA, then NAFED managing director Sanjeev Chadha said millers would be responsible for quality of pulses supplied. Source: RTI

The council found quality checks were weak from the procurement to the supply stage.

Agencies tasked with quality checks engaged “non-trained” and “ill-equipped” officials, who procured pulses from Uttar Pradesh, Madhya Pradesh and Rajasthan without ticking all the boxes of quality standards set by the Agriculture Department.

NPC clearly pointed out that quality checks were lacking in the procurement and supply of pulses. Source: NPC Presentation accessed via RTI

Additionally, when stocks from the Food Corporation of India (FCI) are auctioned, the stocks procured first are disposed of on priority to prevent old stocks from accumulating in its warehouses. But NAFED did away with this ‘first in, first out’ principle.

NAFED, on April 2, 2020, told the DoCA that it would dispose of stocks stored in the warehouse closest to the destination. ‘First In, First Out’ would not be followed for auctions under the PMGKAY, it said. According to NAFED, it was recommended by the Committee of Secretaries – an inter-ministerial group of top bureaucrats.

In a letter addressed to DoCA, then NAFED MD Sanjeev Chadha said FIFO principle would not be followed. Source: RTI

The National Productivity Council also concluded that NAFED hasn’t historically been a stickler for the first in, first out principle.

Despite the Council pointing out that First in First Out principle was not followed earlier and the former NAFED managing director explicitly discarding the principle for supplies under the PMGKAY, the DoCA lied in its RTI records. In its response to the Collective on March 8, 2022, the department said, unprompted, that the principle had been strictly followed for disposing of stocks under the Price Stabilisation Fund scheme.

The timing of when stocks are trucked out is important because, on an average, pulses have a shelf life of six months. It can be extended by a few months under ideal storage conditions. In some cases, the council found pulses were stored for more than 3 years with no regular monitoring of the quality of stocks.

The council, however, found that stocks are stored for periods longer than their shelf life. Shelf life for pulses is generally defined as the period up to which the stock remains free of insect and/or rat infestation, fungal and other microbial growth.

The council also found NAFED was not taking quality into account before auctioning off stocks. Beyond the storage phase, the quality of milled pulses was not being monitored either.

New DoCA Order

With its February 11, 2022 order allowing NAFED to allocate only raw pulses to states, the DoCA has taken care, to a large extent, of NAFED’s auction games. However, the directive leaves the door open for the auction method to continue in three key ways. 

Firstly, the order concerns only pulses supplied under welfare schemes. NAFED supplied milled pulses worth over Rs 580 crore to the armed forces in over four years using the same auction method. The order is silent on this.

Secondly, the order doesn’t actually ban the auction method. This means the states, when allocated pulses, can still use the same method to mill and distribute them.

Finally, it only stops only one commodity – pulses – from being milled by NAFED. The Collective found that in 2019-20, the same auction procedure was used to mill and supply groundnut oil worth more than Rs 180 crore and fortified mustard oil worth over Rs 52.78 crore.

Shreegireesh Jalihal is a member of The Reporters’ Collective (www.reporters-collective.in)