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CAG raises questions over Rs50,000 crore fertilizer subsidy

CAG raises questions over Rs50,000 crore fertilizer subsidy
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First Published: Mon, Aug 01 2011. 12 01 AM IST
Updated: Mon, Aug 01 2011. 12 01 AM IST
New Delhi: In what could pose fresh problems for the United Progressive Alliance government, the department of fertilizers might have disbursed subsidy worth over Rs50,000 crore without completing mandatory procedure, the Comptroller and Auditor General of India (CAG) has said.
The department could have paid out Rs50,587 crore in subsidies without due process to check fraudulent claims by companies between 2007-08 and 2009-10, the government’s external auditor has said in a draft performance audit report submitted to the department. Mint has reviewed a copy.
The report could potentially embarrass an already embattled administration fighting charges of corruption and weak governance.
The subsidy was disbursed on account of sale of fertilizers such as diammonium phosphate (DAP) and muriate of potash.
For all non-urea fertilizers, the department typically releases subsidy in two instalments. As soon as a company notifies the government of the sale of such fertilizers, it releases 85% of the subsidy due to the company on account of its sale.
The money released on the initial claim is given out after a company fills out a form known as Proforma A.
For the remaining 15%, the company has to submit a sale verification certificate—part of what is known as Proforma B—that it obtains from the state government or Union territory where the sale has occurred.
If the company fails to provide the second form within 180 days to receiving the first one, it has to provide a bank guarantee equivalent to the money released to it, until it provides the sale verification certificate along with Proforma B.
This effectively means that the second form, along with the sale verification certificate, acts as collateral for the claim. The government instituted this system in August 2002 to ensure no companies could make fraudulent claims.
It is this due process that was not followed, CAG said.
“The status of outstanding Proforma B certificates was provided only for the period 2007-08 to 2009-10, which revealed that Proforma B certificates for concession claims amounting to Rs50,587 crore were outstanding for the period 2007-10 alone,” CAG said in its report.
Officials at the fertilizer department, however, say that state governments often failed to provide the sale verification certificates.
“We could not have simply held up the companies’ payments as they need that money to meet operational needs,” one department official said, requesting anonymity.
Also, the government has an online fertilizer monitoring system (FMS) to ensure there are no major discrepancies between the quantity of fertilizer sold and the amount of subsidy disbursed, said a second department official, who, too, declined to be named.
This was disputed by an expert.
“There have been several cases in the last two or three years where false claims have been made by companies on sale of fertilizers, and subsidy has been disbursed,” said Sudhir Panwar, a professor at University of Lucknow and a close observer of farm issues. “In addition to this, the problem of smuggling of fertilizers to neighbouring countries is rampant.”
CAG has also pointed to discrepancies in the supply of DAP during 2008-09 by Indian Potash Ltd. It says Indian Potash claimed subsidy for some 30.42 lakh tonnes of DAP.
“As per the data in the web-based FMS, the quantity received was only 28.78 lakh tonnes, leaving an unexplained shortfall of 1.64 lakh tonnes, which involved payment of concession of Rs762 crore,” the report says.
“We have already given an explanation on this to the department of fertilizers,” said P.S. Gahlaut, managing director, Indian Potash. “The discrepancy occurred because of inventory build-up and provisional sales, which were cleared later.”
In its interim report, CAG has also pointed to discrepancies in the disbursal of nearly 100,000 tonnes of urea in West Bengal, Bihar, Madhya Pradesh, Haryana, Gujarat and Jharkhand, which it says may have cost the exchequer in excess of Rs120 crore.
The fertilizer department will respond to the report in a few weeks, its officials said.
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First Published: Mon, Aug 01 2011. 12 01 AM IST
More Topics: Fertilizer | Subsidy | CAG | UPA | India |