On January 7, a Division Bench of the Bombay High Court consisting of Acting Chief Justice J.N. Patel and Justice B.R. Gawai asked the representative of the Government of Maharashtra: Do you have so many funds as to spend on these people [the distillery owners]? What is an essential commodity for you liquor or foodgrains? With this rhetorical question, the judges stayed the disbursement of funds, almost Rs.50 crore each to the 23 distilleries licensed to make alcohol from coarse cereals under a 2007 scheme called Foodgrain-based Liquid and Integrated Material Financial Aid.
The judges provided temporary relief to the petitioners, the Bhimshakti Vichar Manch, a non-governmental organisation from Aurangabad, and Chetan Kamble, a social activist, who had filed a petition under public interest litigation (PIL) challenging the scheme. But their triumph was short-lived. Two months later, the court dismissed their petition saying the judiciary did not have the jurisdiction to interfere in a policy decision. The State government is now free to disburse Rs.50 crore to each of the 23 licensed distilleries.Business of subsidies
The background to these developments goes back to June 8, 2007, when Vilasrao Deshmukh was the Chief Minister. A government resolution announced aid for alcohol production from foodgrains such as wheat, rice, jowar and bajra. The alcohol produced was to be potable. Under the scheme, a subsidy of Rs.10 was to be granted to manufacturers for each litre of alcohol produced from foodgrains. This would be in the form of a rebate on excise duty payable by the distillery owner.
A total of 32 factories were to be granted permission to manufacture liquor under this scheme. Four factories were already functioning. So, a total of 36 factories were ultimately to be producing liquor from grain.
There was no dearth of takers for the scheme, and by January this year 23 licences were issued. The total alcohol production capacity from the 23 distilleries would be 10.85 lakh litres a day or about 25 crore litres a year. This is a significant quantity considering that the State's 2008-09 output of spirit, both industrial and potable, was 36 crore litres. And the business of making spirit becomes more profitable when subsidies are available. If the distilleries are set up in the notified backward D' zones such as Marathwada and Vidarbha, they are offered capital reimbursement of up to 150 per cent or Rs.37.50 crore (whichever is less). And if they are in the even more backward D+' zone, this increases to 200 per cent or Rs.50 crore (whichever is less).
Clearly, the government wanted a rush of investment and they achieved it, said Krishna Khopkar, State vice president of the All India Kisan Sabha. Political leaders have benefitted the most from this scheme. The entire exercise is designed to promote the younger generation of politicians. It is an opportunity to make money swiftly. Kamble too had noted in his PIL petition that it was the wealthy who derived the maximum benefit from this scheme.State's stand
The government claims that the alcohol industry needs subsidies because the capital expenditure involved is relatively high. However, its assertion that the scheme will help farmers who lacked irrigation facilities and grew only rain-fed crops such as jowar has been challenged by the Opposition. In the 2009 winter session of the State Assembly, the Shiv Sena said the scheme would lead to a scarcity of foodgrains and rise in food prices.
Chief Minister Ashok Chavan defended the scheme but said new projects would be suspended. He said, Many people have invested crores of rupees and it is difficult to scrap the scheme at this stage. However, since Maharashtra is facing a major foodgrain crunch, we are going to suspend all new projects of making alcohol from foodgrains. This was the only time that the government agreed with the argument presented in the PIL petition, which said: The foodgrain that is used to make alcohol can be used to feed the poor. Maharashtra has a scarcity of essential foodgrains and is compelled to import from foreign countries.
Debunking the scheme as an eyewash, Khopkar said: Coarse foodgrains are usually in short supply in the market. More than 40 per cent of them come to the market almost immediately after harvest because farmers are desperate for money. This desperation makes it easy for middlemen to purchase for less than the mandatory Rs.10 a kilogram. Grain is usually purchased at Rs.8 a kilo. And it is purchased mainly by the factory agents.
The State government's stand on food security has seen a series of flip-flops. In February, while replying to the petition, it asserted that there would be no threat to food security if jowar was used to produce alcohol. An affidavit filed by Prakash Gaud, Joint Secretary, Home Department, said: Under the Public Distribution System (PDS), jowar has not been distributed from January 2006 to December 2009. Therefore, there was no threat to food security in using jowar as raw material for production of alcohol. The affidavit also claimed that jowar is not the primary staple in Maharashtra.
Khopkar pointed out that the scheme was launched with a view to pick up spoiled grain for the production of industrial alcohol. This was meant to help farmers if their grain went bad but what has happened is something else.
The soiled or rotten grain is collected by PDS agents, who sell the good grain with them to distillery agents and the bad grain through the PDS. Thus needy people in the PDS system get bad grain to eat, while the good grain goes into the making of alcohol, he said.
When faced with criticism about the ethics of growing a cheap, nutritious cereal for alcohol production, the State government justified the project by saying that it fetched better prices for farmers. Quoting the economist Sulabha Brahme, Khopkar said the amount of money made from jowar-based alcohol was 11 times more than what was paid to the farmer. At the same time, it argued, the subsidy offset the greater costs involved in producing alcohol from grain rather than from molasses.
Critics allege that the profits the distilleries made are disproportionate to any advantage that the farmer might get from diverting his produce for non-food use. In reality, the scheme protects distilleries from the volatility in the prices of molasses. But similar safety nets are not available for the farmer who will continue to fall prey to the wiles of market intermediaries since the distilleries source grain not directly from them but through agents. Neither is there a minimum procurement price prescribed to protect the farmer. Thus, the subsidies are trade-distorting and divert grain that would have been consumed by people especially the poor or used as animal feed.
Gaud's affidavit underlined the main intention of the scheme. It stated: There was a surge of 80 per cent in the demand for industrial alcohol in recent years over the average consumption of 20-22 crore litres per annum. During the last two years, the requirement of alcohol, both for potable as well as for industrial use, had gone up substantially. Combined expected future requirement for industrial and potable sectors was projected at around 60 crore litres.
The affidavit stated that the worldwide trend was to use foodgrains for liquor production. It pointed out that molasses, preferred until now for the production of alcohol, had been replaced by coarse cereals. The switch is a convenient one. When the cultivation of sugarcane was criticised as a criminal waste of water and land, all objections were brushed aside by the cane lobby. Gaud's affidavit states that bringing more areas under sugarcane cultivation was not a realistic or feasible option and that the processes involved in producing molasses are polluting. The government had chosen to ignore these facts earlier. Why? Because at that time the production of alcohol from coarse cereals was a cottage industry and its huge commercial value had not been discovered. The fact is also that molasses have now been diverted to the making of industrial ethanol. For investors, coarse cereals are the new sugarcane since they are cheaper to grow, are not water-intensive, and can be cultivated widely.
Given the gap between demand and availability, it is not clear where the raw material will come from. As per current indications, the 36 factories would require a total of 70 lakh tonnes of foodgrains to produce around 15 lakh tonnes of liquor. Over the past 10 years, the production of jowar has been falling. In 1996-97, 56.92 lakh hectares of land was under jowar. By 2003-04, this fell to 45.43 lakh ha. According to Economic Survey of Maharashtra 2008-09, during the year 2008-09, the area under foodgrains reduced by 20 per cent, resulting in reduction of crop production by 31 per cent in total kharif foodgrains production. This fall was mainly in kharif jowar, bajra and all pulses.
Khopkar says that in the past 25 years, the State government has relaxed restrictions on prohibition with a view to amassing revenue from excise. First came the wineries, under Nationalist Congress Party president Sharad Pawar's initiative; then came the sugar factory distilleries; and now the coarse grain alcohol project. And all this, he says, is done in the name of helping the poor.