Were the cabinet and the PMO sleeping all the while? Not really. When the latter ordered earlier this year that the money be recovered, the babus ignored it. Finance minister Yashwant Sinha's writ demanding compliance with the PMO's directive has also failed to produce any visible results.
Ever since 1977, the government has granted subsidies to urea manufacturers to ensure they supply it cheap to farmers. The subsidy is linked to fuel costs—the more money spent on fuel, the higher the subsidy. Periodically, the government conducts checks at each plant to see how much fuel was consumed and, therefore, the quantum of subsidy to be paid.
But the urea units became fuel-efficient, and from 1994 onwards were spending less and less on fuel. Logically, the subsidy should have come down too. But the manufacturers continued to draw subsidy at the old rate even after 1997. Over time, the excess amounts drawn ran into thousands of crores. The matter came to light just before the 2001 budget session, when former prime minister Chandra Shekhar wrote to both the PM and the FM, saying that the subsidy meant to benefit farmers could be lining the pockets of a few industrialists instead, including K.K. Birla, G.P. Goenka and A.C. Muthiah. Rajya Sabha members Sanjay Nirupam and Prem Gupta raised the issue in the House. Under pressure, Sinha sought a report from the ministry of chemicals and fertilisers (Outlook, April 30, 2001).
That report never materialised. Drawing on other government sources, Sinha conducted his own analysis and came to the conclusion that the former PM was right. In a letter to fertiliser minister S.S. Dhindsa (DO No 6(3) PFII/2001), he said that eight of the urea units alone had been paid "at a conservative estimate" an excess of Rs 500 crore.
Dhindsa agreed and ordered steps to stop the outflow of excess subsidy, fix new norms and recover the excess payout. A month went by as the babus, like a Yes, Minister farce, went looking for a reason to justify the payout. And what was that? The urea manufacturers were entitled to the excess subsidy because they'd spent money on making their units more fuel-efficient. Dhindsa argued that it was precisely due to this reason the units had been granted a three-year "holiday", from 1994 to 1997, when they'd claimed subsidy at the old rate.
So, if the holiday continued beyond 1997, it was in violation of existing norms, right? No, explained the bureaucracy, that was merely because of delays in receiving "technical data from (the) units". It added that the ministry was "awaiting the report of the Expenditure Reforms Committee", and that a parliamentary committee had recommended against "mopping up of energy gains". And anyway, shouldn't the manufacturers be rewarded for adopting "better managerial practices"?
Dhindsa lost his cool. He charged the department of fertilisers with unnecessarily "making the issue complex". Moreover, representatives of a few companies had also told him how the system worked: the department would just finalise an ad-hoc list on the basis of a year's computations. "The minister was told very little work had been done by the bureaucrats," a top ministerial source told Outlook. Dhindsa decided to stick to his guns. He said the FM's version was quite clear and "difficult to be disputed". The excess payout was Rs 3,041 crore and since April 2000, at least Rs 857 crore. There was no need to review policy, it was merely a question of implementing the existing one, he pointed out. That was on August 23.
In the meantime, on August 6, Prem Gupta wrote to Dhindsa threatening a privilege motion against the government for "giving a false reply and misleading the House" on the issue of excess subsidy to fertiliser companies. In its reply during the budget session, the ministry had denied the excess subsidy: "...while the advantages may appear to have accrued to some units, the reality overall is otherwise". Gupta wrote: "I understand this is totally untrue... the government is trying to make it look like a policy issue whereas it was a case of sheer administrative negligence, as the existing policy was not properly implemented for several issues." Precisely the point that Sinha had raised and Dhindsa had endorsed.
But the babus were made of sterner stuff. They insisted on placing the matter before the PMO, bypassing their own minister who had said that there was no need to seek approval as it wasn't a policy matter. The file was sent to the PMO under Rule 12 of the Transaction of Business Rules. To everyone's surprise, the PMO reacted promptly and on September 28 approved the stoppage and recovery of excess outflow, and fixing of new norms.
For a month, nothing happened. It was as if the file didn't exist. Then, according to top-level sources in the finance ministry, Sinha got rattled. A notification was issued by the department of fertilisers on November 5, 2001, saying that the urea subsidy had been revised. It notified the quantum of excess payouts recoverable from April 2000 onwards, and said that the amounts from 1997 onwards, would also be computed and recovered. The total dues, as computed by the ministry, now came to Rs 3,198.52 crore (higher by Rs 157 crore), and, from April 2000 onwards, Rs 1,045 crore (up Rs 188 crore).
And here, the case gets curiouser. The mark-up also changed the claims made on some manufacturers, but in their favour. In the case of the K.K. Birla-owned Zuari Agro plant in Goa, Rs 156.64 crore was the recoverable amount on file, while the November 5 notification asked for Rs 74.34 crore. Similarly, while A.C. Muthiah's spic had been overpaid Rs 157.03 crore, the amount to be recovered was shown as Rs 101.09 crore. Ajay Shriram's sfc had been overpaid Rs 47.44 crore earlier, now it was only Rs 15.25 crore.
"Competent authorities' approval was sought for affecting these changes in the subsidies. The variations were calculated on the basis of reduction in the level of energy consumption," explains Sudhir Krishna, joint secretary, ministry of fertilisers, who refused to accept the figures in the note prepared by his own department! He also refused to comment on why the department erred in not computing the interest charges. "We followed orders from the competent authorities," is all that he will say. The unsolved mystery: who gave the orders, and at whose behest? The only information on any such possible request is a letter written by Uttar Pradesh chief minister Rajnath Singh (ostensibly at the behest of the fertiliser lobby) to the prime minister, recommending their dues be scaled down.
Says Samajwadi Janata Party general secretary H.N. Sharma (he had persuaded Chandra Shekhar to take up the matter and has also written to Chief Vigilance Commissioner N. Vittal): "Once the PM has approved a file, you cannot mess with it. You cannot change a single word, much less a set of figures. If the department of fertilisers wanted to change the amounts, it should have sought the approval of the PMO again. It is not enough to tell the industrialists to pay back the money they took in 1997. After all, it ran into more than Rs 400 crore. Who is going to bear the interest on that money? Someone must take responsibility."
If the government does not charge interest, says Sharma, "a public interest litigation is inevitable". Will that teach the babus a lesson? We'll have to wait and see how the latest chapter of this murky subsidy saga unfolds.
Shantanu Guha Ray and Bhavdeep Kang