Rs 1,160 Crore Rice 'Scam' Widens: 56 Mills, 22 Ethanol Plants Under Scanner

A truck carrying government rice from a Food Corporation of India (FCI) warehouse to an ethanol plant was found inside a private rice mill. What began as the suspected diversion of one consignment has now widened into an investigation involving 17 seized trucks, 56 rice mills, more than 50 witnesses, multiple districts and 22 ethanol plants.

The central question is no longer why one truck changed its route. Investigators are now trying to establish how much of the nearly 5 lakh metric tonnes of government rice allocated for ethanol production was actually converted into ethanol, and how much may have been diverted through private mills before returning to government warehouses. An FIR, confidential reports sent by the Balaghat Collector and records examined by police indicate a suspected circular trade in which subsidised government rice was allegedly sold by ethanol plant operators to private rice mills, repacked and then deposited back into government stocks as custom milled rice.

If established, the alleged arrangement would have generated profit at every stage. Government agencies incurred a cost of nearly Rs 4,000 per quintal on procuring, transporting, handling and storing the rice. The same stock was supplied to ethanol plants at about Rs 2,320 per quintal to encourage fuel production.

Investigators suspect that some plant operators or their representatives sold this rice to millers at between Rs 2,600 and 3,000 per quintal, earning a margin without producing ethanol. The millers allegedly repacked the ready rice and deposited it in government warehouses as rice processed under the custom milling system. This meant they did not have to mill the paddy supplied by the government.

Investigators are examining whether that paddy was then sold in the open market or transported to other states at higher prices. The financial incentive was substantial. The ethanol plant could profit by reselling subsidised rice. The miller could avoid electricity, labour and machinery costs. Milling charges could still be claimed. The original paddy could allegedly be sold separately. The same government stock may therefore have earned money repeatedly while completing a full circle from an FCI warehouse to an ethanol plant, then to a private mill and finally back into a government warehouse.

The only step it may have skipped was becoming ethanol. The alleged system could not have functioned without serious monitoring failures or possible collusion, investigators believe. The scrutiny may extend to officers, quality monitors and inspectors responsible for accepting rice deposited in government warehouses.

The investigation is examining whether rice already released by the government was accepted again as newly milled stock without proper verification.

Sources say rice supplied to ethanol plants at Khapa and Bansi in the Waraseoni region is also being examined. The supply chain was allegedly not limited to FCI warehouses in Balaghat, with stocks from other districts also suspected to have been routed to ethanol units. According to sources, 22 ethanol plants across 17 districts received government rice under the same subsidised scheme. Investigators are trying to determine which plants actually produced ethanol and whether any portion of the rice was diverted to mills.

Balaghat Superintendent of Police Aditya Mishra said, "We initially received information that three trucks carrying rice had left FCI warehouses in Balaghat for the AVJ Agrico ethanol plant. We then learnt that one of the trucks had been taken to the local Sancheti Rice Mill. A joint team of Revenue, Food and Police officers was formed, and during the inspection the truck was found inside the rice mill. We registered an FIR for cheating and constituted a Special Investigation Team of 20 to 25 members under a gazetted officer."

"We examined the records, particularly those seized from AVJ Agrico, to verify how much rice left the warehouses for the ethanol plant, when it moved and at what time it reached the plant. We also analysed data obtained from the owners of the warehousing company and their software. More than 50 statements have been recorded so far. Four people have been arrested, more than 13 accused have been identified and the investigation is continuing. Further action will be taken as new facts emerge," the police officer added.

On the basis of technical data analysis, the officer said, notices were issued to 56 rice mills.

Their owners have been questioned, statements have been recorded and records have been collected, the police officer said.

"We have also examined records relating to two rice mills in Seoni. A total of 17 trucks suspected to be involved in the case have been seized. Non-bailable warrants have been obtained from the court against two persons," the officer said.

The investigation is now moving beyond individuals and vehicles to reconstruct the alleged financial and physical movement of the rice. FCI dispatch records are being matched with ethanol production data. Transport logs are being compared with warehouse receipts. Custom milling records are being checked against government procurement figures.

A critical test will be whether the quantity of rice received by each ethanol plant corresponds with its actual ethanol output. Investigators are examining production capacity, electricity consumption, machinery use, raw material records and the volume of ethanol shown as manufactured.

Similar checks are being carried out at rice mills. If a mill claimed to have processed thousands of quintals of paddy but its electricity use, labour deployment and machinery records do not support such production, investigators will have to establish where the rice deposited in government warehouses actually came from.

The case is more disturbing because the grain under scrutiny was fortified rice. Fortified rice is enriched with iron, folic acid and Vitamin B12 to reduce anaemia and malnutrition among children, pregnant women and adolescent girls.

The investigation is examining why freshly fortified rice was supplied for ethanol production when distilleries generally use broken rice as feedstock. It is also being examined whether FCI followed its stock rotation norms, under which older stocks are ordinarily expected to be released first.

The Balaghat Collector's confidential communications have further widened the case. The Collector asked FCI to verify whether rice released for ethanol production actually reached the designated plants and recommended scrutiny of the allocation process, transport chain and utilisation certificates. He also sought examination of the roles of FCI officials, ethanol companies, transporters and rice mill owners. The volume now under scrutiny is nearly 5 lakh metric tonnes, or 50 lakh quintals. At the subsidised rate of approximately Rs 2,320 per quintal, the stock is valued at around Rs 1,160 crore.