Madhya Pradesh | E20 twist: Rice on a round trip

Ethanol isn’t getting good press of late. If the diversion of rice as an alternative source for the E20 blend is a controversy within a controversy, Madhya Pradesh has managed to squeeze out a further subset of that—rice meant for ethanol manufacturing in distilleries being routed back to the public distribution system (PDS)! The Balaghat police have detected a scam that involves conniving distillery and rice mill owners, and possibly government officials, all of whom make a clean profit in each step of the transaction.

The plot started unspooling with three rice-laden trucks being seized at Sancheti Rice Mill in Waraseoni town, Balaghat district. The relevant permissions suggested the rice should have been bound for AVJ Agrico, an ethanol manufacturing company based in Chhindwara. It was part of a consignment from the Food Corporation of India (FCI), allocated specifically for ethanol. Instead, it had been sent to a rice mill which, in turn, would plough it back into the public distribution system (PDS).

POCKET THE DIFFERENCE

How would that make money? To begin with, the FCI released this batch of rice at a discounted Rs 23,200 per tonne. There are some 22 ethanol plants in Madhya Pradesh, which get their raw material from government agencies. The FCI is supposed to give damaged rice to these plants. Instead, it gave good quality rice in this case, which the ethanol plant then transfers to the rice mill. The latter shows it as new custom-milled grain and sells it back to the FCI. The paddy the rice mill was separately allocated by the FCI for milling and producing PDS rice gets diverted to the open market, perhaps even to the export market.

Local media and police claim it to be a scam worth “a thousand crore”. The FCI accepts that such leakage exists but has denied the scale. It says the rice seized is worth just Rs 5.5 lakh. Aditya Mishra, Superintendent of Police, Balaghat, has set up a 25-member Special Investigation Team (SIT) to probe the case as it involved multiple districts (the trail could even extend to Maharashtra). A total of four people have been arrested, and 13 people booked for fraud; 17 trucks containing rice have been seized till now.

The FCI says a total of 2.98 lakh tonnes of rice was supplied to distilleries at Rs 22,500 per tonne in ethanol supply year 2024-25, and another 2.41 lakh tonnes at Rs 22,300 per tonne in 2025-26, till June 30. The local media, it says, wrongfully multiplied the total 5.39 lakh tonne supplied rice with its value to claim a scam of Rs 1,160 crore. It claims the distilleries had largely paid the due amounts. It agrees, however, that 24.25 tonnes of diverted rice—worth Rs 5.63 lakh—was detected by an FCI inspection team; an FIR was lodged against the distillery, its deposit impounded, and the state food department imposed a fine of Rs 44.12 lakh on the rice mill.

Since it’s a newly minted scam, the picture is still evolving. One key missing link: a specified quantum of rice, and its output, cannot be shown in two different places. Rice meant for ethanol is round-tripped “from FCI to distillery to rice mill to FCI” and then disappears into the PDS network. But how does the distillery show the gap in the ethanol it was supposed to produce with the allocated rice? Sources say the distillery owner has to send an associated quantum of ethanol to the petroleum company and issue a certificate. Some questions are still unanswered.