CAG report points to loopholes in Maharashtra government's subsidy scheme for grain distilleries

The Comptroller and Auditor General (CAG) has pointed to massive lacunae in the state government's short-lived but controversial scheme to grant subsidy to grain-based distilleries.

The state government in 2008 had promulgated a foodgrain-based distillery and integrated unit financial aid scheme to promote use of grain-based alcohol for manufacture of potable liquor, while molasses-based alcohol could be utilised for fuel blending and industrial use. The subsidy was meant to make up for the higher cost of manufacture of grain-based spirit. The aim was to encourage investment, utilise grain unfit for human consumption for spirit production and help farmers get proper prices.

However, the CAG report for the year ended March 31, 2014, on the revenue sector, has pointed to loopholes in the scheme's implementation. These include grant of subsidy to ineligible distilleries, non-diversion of molasses-based ethanol to petroleum companies, non-monitoring of distilleries to watch their functioning after grant of subsidies, and absence of penal action to ensure a minimum operation period for the unit after availing subsidy.

State excise officials admit that many of the 32 licences issued under the scheme went to relatives of politicians across party lines. "Though subsidy was allowed to the distillers, there was nothing on record to suggest that the subsidy scheme benefited the grain-producing farmers or had led to an increase in the production of grains such as jowar," said the report tabled in the state legislature's budget session.

"As per the scheme, one of the inherent objectives was to increase production and productivity of jowar in the state. However, as per information obtained from the director of agriculture, Maharashtra, there was no overall increase in the area, production and productivity of jowar in the state after the scheme was launched."

The policy said all-new grain-based distilleries or integrated units (distilleries and potable liquor units), which were set up and made operational by December 31, 2009, were eligible for financial assistance for spirit manufactured from the grains produced in the state. This reimbursement was at the rate of Rs10 per bulk litre of the spirit sold to units manufacturing either liquor, drugs or cosmetics to the extent of excise duty paid on such manufacture.

"Out of these 32 licences, we found that in seven cases the distilleries had applied for licences for production of grain-based spirit prior to the date of notification of the scheme. These distilleries had submitted their LOIs and detailed plan for setting up of distilleries much before the notification of the scheme. None of these units had indicated that they need any sort of help from the government for setting up the industry," it noted, adding, "...the above facts indicate that there was no justification for granting subsidy to these seven distilleries."

The subsidy bills for these seven units — Alco Plus Producers Pvt Ltd, Latur; Grainotch Industries Pvt Ltd, Aurangabad; Viraj Alcohol, Sangli; Anand Distillery, Amravati; Yashraj Ethanol Processing Pvt Ltd, Satara; Venkateshwara Bio Refinery, Sangli; and Shivshakti Sahakari Glucose Karkhana, Sangli — were to the tune of Rs120.17 crore, ie 90.48% of the total subsidy of Rs132.82 crore given to 11 distilleries.

"...the scheme led to utilisation of the taxpayers' money towards promotion of a demerit commodity," the report noted, adding that alcoholic beverages are considered a 'demerit commodity' and subject to a very high rate of taxation in Maharashtra to make them expensive and discourage consumption. The finance department had also noted that such incentives under the scheme "did not find a place in the State's planning process and would attract public criticism."

State excise officials said they had given out Rs150 crore as subsidies in the scheme so far.