Former health minister Kalpnath Rai had imported sugar for a price higher than the market price, causing a loss of Rs 650 crore to the government.
Even in a country numbed by bungling and passing the buck by ministers and bureaucrats for everything, from handling the plague situation to payoffs in government deals, the scandal over sugar imports earlier this year presented yet another example of a system used and misused.
Over the past two weeks, the sugar saga has received fresh attention. The reason: leaks from Prime Minister P.V. Narasimha Rao's close circles that he has expressly forbidden the release of the report on the affair by the Gian Prakash Committee - a one-man inquiry chaired by the former Comptroller and Auditor General of India.
Over the past two weeks, the sugar saga has received fresh attention. The reason: leaks from Prime Minister P.V. Narasimha Rao's close circles that he has expressly forbidden the release of the report on the affair by the Gian Prakash Committee - a one-man inquiry chaired by the former Comptroller and Auditor General of India.
And selected leaks which in turn seek to damn Minister of State for Food Kalpnath Rai, Commerce Secretary Tejendra Khanna and recently retired cabinet secretary Zafar Saifullah.
The muddle has cost the country about Rs 650 crore through opportunities lost and rising prices in the international markets while some of the best brains in the Government - including Rao, Finance Minister Manmohan Singh and secretaries Montek Singh Ahluwalia, Saifullah and Khanna - who are credited with pushing India's liberalisation, try to figure out what to do. Instructions were ignored by default - and many say design - to the profit of the international sugar sellers, importers, and traders.
Now, the decision to delay publicising the report till after the Assembly elections in November - the Gian Prakash Committee was formed in July under Rao's direction and submitted its report on October 5 - seems like another obvious attempt to brush a scandal under the carpet.
Now, the decision to delay publicising the report till after the Assembly elections in November - the Gian Prakash Committee was formed in July under Rao's direction and submitted its report on October 5 - seems like another obvious attempt to brush a scandal under the carpet.
At a Cabinet Committee on Prices (CCP) meeting on April 8, 1994, Singh went as far as to note that "certain parties had a vested interest in giving credence to unreliable estimates with a view to constrain timely decisions".
Till the report is published, some questions may never be answered fully. And going by media leaks on what the report contains (one version blames Rai and the cartel, the other Saifullah, Khanna, and the then food secretary, A.C Sen) some fundamental questions may not be answered at all.
Till the report is published, some questions may never be answered fully. And going by media leaks on what the report contains (one version blames Rai and the cartel, the other Saifullah, Khanna, and the then food secretary, A.C Sen) some fundamental questions may not be answered at all.
- Did the food minister deliberately block the import of sugar, playing into the hands of the domestic sugar lobby?
- Did the lobby, in cahoots with an international cartel see a prime killing to be made as delays drove up prices? And deliberately feed Rai and the Food Ministry incorrect figures?
- Did Rai, along with Khanna and with tacit approval from higher ups in the bureaucracy and cabinet, block imports by the State Trading Corporation (STC) while at the same time allowing private parties to import sugar to take advantage of rising prices at home?
Though most officials are tight-lipped about events - except Rai and Khanna who have publicly tried to distance themselves from bungling by blaming every body else - some questions are answered by a blow-by-blow set of confidential documents obtained by INDIA TODAY.
These record the minutes of the meetings of the CCP which is convened to monitor the price movement of essential commodities across the country. From the meeting on December 15.1993 which for the first time officially documents the crisis and Rai's opposition to imports, to the minutes of the Committee of Secretaries (COS) meetings which started peaking in May, and Saifullah's indignant replies to both Gian Prakash's questions and his submission of innocence to Rao.
These documents are exclusive, but not explosive. While they do provide an insight into the decisions and indecisions at the highest levels of the Government, they do not answer questions about who made money underhandedly, and which lobby pressured whom into delay and inaction. However, they do confirm what had been assumed all along: instead of working together with the mission of combating the self-created sugar crisis, various government bodies bickered about why, how and when.
These record the minutes of the meetings of the CCP which is convened to monitor the price movement of essential commodities across the country. From the meeting on December 15.1993 which for the first time officially documents the crisis and Rai's opposition to imports, to the minutes of the Committee of Secretaries (COS) meetings which started peaking in May, and Saifullah's indignant replies to both Gian Prakash's questions and his submission of innocence to Rao.
These documents are exclusive, but not explosive. While they do provide an insight into the decisions and indecisions at the highest levels of the Government, they do not answer questions about who made money underhandedly, and which lobby pressured whom into delay and inaction. However, they do confirm what had been assumed all along: instead of working together with the mission of combating the self-created sugar crisis, various government bodies bickered about why, how and when.
Kalpnath Rai Pushes Wrong Estimates
And then doesn't push to clear the mess
If there is a lesson in this, it's how not to run a ministry. As far back as the CCP meeting on December 15 last year, Food and Civil Supplies Minister A.K. Antony questioned the Food Ministry's "hopeful" estimate of 115 lakh tonnes of sugar production in 1993-94 - a figure provided by the Indian Sugar Manufacturers Association (ISMA), a private lobby - and recommended that 15 lakh tonnes be imported immediately to offset a possible 19 lakh tonne gap in the system. Rai opposed it.
His defence of Antony's fears of free sale sugar prices rising to Rs20 a kg from the prevailing Rs 12 to Rs 14 and a shortfall was that it is not correct to' 'pamper the consumer at the expense of the farmer", who would find little reason to sell sugarcane to sugar manufacturers instead of gurand khandsari manufacturers if prices were not attractive.
So far, so good, and a politically correct suggestion that left sugar in the public distribution system (PDS), or ration, untouched while skimming the fat from free sale sugar.
Rai reiterated the 115 lakh tonnes figure and went further to say that this wasn't a good time to import as the news of likely import by India had already pushed up international prices. And anyway, as the lead time for contracting for delivery was "only two months", if a decision on imports was taken by February 1994, all would be well.
Then, he turned 180 degrees at the next CCP meeting on March 9,1994 saying industry estimates were all wrong, and sugar production would be only 104 lakh tonnes, or 11 lakh tonnes less. This was further reduced to 96 lakh tonnes, which matched Antony's submission in late November. He also went ahead and agreed to another suggestion by Antony: import 10 lakh tonnes of sugar immediately.
But strangely, when criticised for presenting an "unduly optimistic picture" by the CCP chairman - who said that the decision to import sugar could have been taken in November - Rai went ahead with Antony and Agriculture Minister Balram Jakhar's counter argument.
Basically, that increasing market prices of sugar would lead to increased production, and that was necessary to ensure that a shortfall didn't occur in the 1994-95 production season as well. Strange, because the import of sugar and its release in the market would have exactly the opposite impact, of reducing prices. However, the decision was to continue with PDS sale, and contract for 10 lakh tonnes of imports.
After this, Rai completely washed his hands of the affair, though government imports did not take place till May and, meanwhile, private parties had gone ahead and started contracting imports under an Open General Licence (OGL) at a government decreed zero-level duty and started cashing in on rising prices at home. "We don't deal with imports, the Commerce Ministry does," Rai told INDIA TODAY. "Linking my ministry with imports is malicious and unfair."
It is neither. Though it is correct that the Commerce Ministry is responsible for imports, the Food Ministry is responsible for commodities and making them available for distribution. And if the situation was so bad that Rai had to eat his estimate, then surely, suggests A.C. Sen, it was the ministry's job to keep pushing for imports, goading others to act.
"He consistently favoured a clamp down on sugar releases," says Sen, who has since moved to the Home Ministry. "Besides, it's the Food Ministry's responsibility to make sugar available. We can't palm the blame off on somebody else. He (Rai) just didn't show any interest, never wrote to the commerce or finance ministries. Did he write to the prime minister or to the commerce minister (Pranab Mukherjee) on this?."
After this, Rai completely washed his hands of the affair, though government imports did not take place till May and, meanwhile, private parties had gone ahead and started contracting imports under an Open General Licence (OGL) at a government decreed zero-level duty and started cashing in on rising prices at home. "We don't deal with imports, the Commerce Ministry does," Rai told INDIA TODAY. "Linking my ministry with imports is malicious and unfair."
It is neither. Though it is correct that the Commerce Ministry is responsible for imports, the Food Ministry is responsible for commodities and making them available for distribution. And if the situation was so bad that Rai had to eat his estimate, then surely, suggests A.C. Sen, it was the ministry's job to keep pushing for imports, goading others to act.
"He consistently favoured a clamp down on sugar releases," says Sen, who has since moved to the Home Ministry. "Besides, it's the Food Ministry's responsibility to make sugar available. We can't palm the blame off on somebody else. He (Rai) just didn't show any interest, never wrote to the commerce or finance ministries. Did he write to the prime minister or to the commerce minister (Pranab Mukherjee) on this?."
The fact is that Rai didn't. What he did do was that in mid-May, when Sen, after consultations with Saifullah, went ahead and floated tenders through the Food Corporation of India (FCI) to import sugar - a decision taken because the STC and MMTC were moving very slowly and the situation had got totally out of hand - Rai rushed back from a tour when he heard about it and cancelled the tender.
Rai's reasoning: nobody had come to him for permission to import through the FCI. "As the STC and MMTC were already involved, I felt it was not proper for the Food Ministry to involve itself."
The Commerce Ministry Goes Slow
And admits -too late- it could have done moreSo, would it be proper for the Commerce Ministry to involve itself? Undeniably, as it was chosen as the instrument of import. Not so, going by what the Commerce Ministry did do.
Essentially, it took recourse to loopholes and grey areas, undaunted by repeated decisions by various meetings of the cos and the CCP, and even two direct orders from the prime minister.
In part, a delay occurred because of the same reason that it foxed the Food Ministry: Manmohan Singh's flat refusal to additionally subsidise import costs to offset the price differential of Rs 6 a kg for imported sugar in case it was used for the PDS, where the price was Rs 9.05 - or, about Rs 600 crore.
This point was further driven home at the CCP meeting on March 9 - the same one at which Rai backtracked on estimates - that the STC and MMTC will go ahead and contract imports, but under no circumstances "can subsidy be considered for the import of sugar".
Commerce Secretary Khanna brought this up at the next CCP meeting on April 8, when Saifullah said as the private trade had already bought sugar under duty free ogl, STC and MMTC should also have done so.
Khanna defended himself then, during a June interview With INDIA TODAY and a more recent one last week: How could he go ahead and push for imports when, on the one hand, the Government wanted imports on commercial considerations and, on the other, didn't make clear how much would be used for free sale and how much for the PDS? And as subsidies were out, how could he push the STC and MMTC to import against these constraints?
Fair enough. But it does not explain why the STC and MMTC moved rapidly on imports when clearance started flowing only in subsequent meetings, and when the prime minister - at a April 18 review meeting chaired by him - the CCP and Saifullah repeatedly asked about imports from mid-April to mid-May, and mentioned that the offsetting of losses "would be considered" and that STC and MMTC "will take urgent steps to import sugar." Besides, while the MMTC had contracted for 1.3 lakh tonnes of sugar by May on commercial considerations, why didn't STC do the same?
Fair enough. But it does not explain why the STC and MMTC moved rapidly on imports when clearance started flowing only in subsequent meetings, and when the prime minister - at a April 18 review meeting chaired by him - the CCP and Saifullah repeatedly asked about imports from mid-April to mid-May, and mentioned that the offsetting of losses "would be considered" and that STC and MMTC "will take urgent steps to import sugar." Besides, while the MMTC had contracted for 1.3 lakh tonnes of sugar by May on commercial considerations, why didn't STC do the same?
At a COS meeting on April 28 where Khanna was present, the committee took a collective decision - that if the Government picked up any amount of sugar for the PDS, the difference "will be reimbursed, and losses if any, will be underwritten by the Government". Meanwhile, there was a proposal to import raw sugar.
It was countered by Khanna, saying that as it had an import duty of 65 per cent, he was told that the Finance Ministry could help sort it out. Following up on that, Sen claimed a few days later that he had "lined up" one lakh tonnes of spare refining capacity for the raw sugar. Still, at a May 13 meeting of the cos, Khanna admitted that while the MMTC had contracted sugar, the STC was "yet to make a beginning".
His defence: in a recent STC tender, prices quoted were $9 (Rs 284) a tonne more than the previous tender. Hence, it has been decided to postpone the purchase for a reasonable period by which time the market "would cool a bit". That's when Saifullah lost his cool, blasting the
Commerce Ministry for an "indefensible lack of performance''. He even went so far as to say that the STC's insistence on dealing with the Refined Sugar Manufacturer's Association - an international sugar cartel which controls anything between 40 and 60 per cent of world supplies in a given year - rather than pick up refined and raw sugar from ready countries like Brazil and Australia, was "not quite desirable" (bureaucratese for "why the hell do you keep insisting?").
Commerce Ministry for an "indefensible lack of performance''. He even went so far as to say that the STC's insistence on dealing with the Refined Sugar Manufacturer's Association - an international sugar cartel which controls anything between 40 and 60 per cent of world supplies in a given year - rather than pick up refined and raw sugar from ready countries like Brazil and Australia, was "not quite desirable" (bureaucratese for "why the hell do you keep insisting?").
And that the delay in imports, which led to a constant rise in world sugar prices, was a "breach of confidentiality" on the STC's part - or someone from the STC was leaking purchase information to the cartel, then holding back while it pushed up prices.
Moreover, this inaction may be playing into the hands of the cartel in collusion with the domestic sugar lobby, where a handful of private importers - five, actually - would benefit from high prices. In fact, even Rai, whether wittingly or unwittingly, endorses this in conversation With INDIA TODAY.
"If anybody benefited, it was the industry, 75 per cent of which is anyway with the cooperatives and the Government." This may be true, but members of ism a were the ones importing, not government agencies.
Khanna had no defence. And when he said that one reason he hadn't moved on raw sugar imports was because of the import duty, he got it in the neck some more. Why, asked Saifullah, didn't he follow up with the Finance Ministry when it was decided in April to scope out the possibility?
Khanna also suggested at this May 13 meeting that, as a fallback, the FCI could consider importing. Though this was accepted in principle, the committee made it clear that it does not detract from the Commerce Ministry's responsibility. Khanna's cumulative response: assuring the meeting that the STC and MMTC would "rise to the occasion".
How The Government Did Not Work
Delayed decisions and shoddy implementation
A bit late for all that. By the time the STC and MMTC did rise to the occasion, so had international sugar prices. When they finally got around to contracting the full 10 lakh tonnes, the STC, for example, ended up paying between $378 (Rs 11,926) and $405 (Rs 12,777) a tonne to various international sellers, about $40 (Rs 1,262) a tonne more than April prices. The loss to the Government, the exchequer, and the public: Rs 350 crore.
A bit late for all that. By the time the STC and MMTC did rise to the occasion, so had international sugar prices. When they finally got around to contracting the full 10 lakh tonnes, the STC, for example, ended up paying between $378 (Rs 11,926) and $405 (Rs 12,777) a tonne to various international sellers, about $40 (Rs 1,262) a tonne more than April prices. The loss to the Government, the exchequer, and the public: Rs 350 crore.
The rest came from the increased sugar prices at home from which domestic sellers benefited. An indication of how much could have been made: free sale sugar prices in Delhi rose from Rs 12.50 in September 1993 to over Rs 18 by June this year. Right now, there are no official answers to anything, even as sugar production estimates for 1994-95 show an eight lakh tonne shortfall.
Rao is maintaining a studied silence on the affair. Every political party - even the BJP, which had pressured the Government in the monsoon session to investigate the matter - has its mind elsewhere as assembly elections draw near. And just about everybody involved has some defence, however iffy.
Since summer, Rai has consistently hammered at Saifullah, and Sen for not pushing through imports and for daring to overstep his limits and float a tender through the FCI. Saifullah as cabinet secretary, had, in turn, written to the prime minister highlighting the commerce and food ministries' ineptness. And more recently, on October 8, protesting articles in newspapers which say the Gian Prakash Committee has indicted him.
And as a reminder to Rao that when he read the food minister's June interview castigating Saifullah in business today, Rao had' 'expressed shock" and said that he "would do something about it". This can be interpreted as trying to rope the prime minister into the mess, but Rao already has an alibi, having directed the STC and MMTC to import in categorical terms.
Since summer, Rai has consistently hammered at Saifullah, and Sen for not pushing through imports and for daring to overstep his limits and float a tender through the FCI. Saifullah as cabinet secretary, had, in turn, written to the prime minister highlighting the commerce and food ministries' ineptness. And more recently, on October 8, protesting articles in newspapers which say the Gian Prakash Committee has indicted him.
And as a reminder to Rao that when he read the food minister's June interview castigating Saifullah in business today, Rao had' 'expressed shock" and said that he "would do something about it". This can be interpreted as trying to rope the prime minister into the mess, but Rao already has an alibi, having directed the STC and MMTC to import in categorical terms.
But there is an insane justice to it: after all, Saifullah, as cabinet secretary, was only following the directions of the head of the cabinet, the prime minister.
In this mess, and speculation over the Gian Prakash Committee report ever seeing the light of day, it is easy to overlook the statement by Manmohan Singh in the CCP of April 8, that an independent survey of the shortfall by the Food Ministry would have been useful to counter vested interests, perhaps the most severe statement on the scandal.
In this mess, and speculation over the Gian Prakash Committee report ever seeing the light of day, it is easy to overlook the statement by Manmohan Singh in the CCP of April 8, that an independent survey of the shortfall by the Food Ministry would have been useful to counter vested interests, perhaps the most severe statement on the scandal.
But it has lost its validity. The truth is, while everybody acted frenzied, they moved slowly, in one way or another. Crucial decisions were not taken on time, crucial decisions were not communicated in time, or at all. And crucial follow up moves were not made. Whodunit? Everybody
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