Photograph of Anil Chawla

A SCANDAL TO CAP ALL SCANDALS
Author - Anil Chawla



There was a time it needed a gun or rather a cannon to make money the corrupt way. A few years later a Chief Minister improvised and managed a massive scandal with fodder. Madhya Pradesh Government has bettered all the post records. A scandal of more than Four Hundred Crores without the use of guns or land or even fodder. Just a small cap used for country liquor bottles that is all that the powers in Madhya Pradesh have used for siphoning of such a huge sum from the pockets of poor people of MP.

In addition to using a very small insignificant object to achieve such lofty objectives, the scandal marks another first in the history of corruption. In any scandal, the Government collects taxes and it is in the process of utilization of the collected funds that the great artists of this exalted art take away a part for their own use. But this is a very inefficient process. The present scandal in MP marks a process of disintermediation of the fleecing of the common man. In this case there is no misappropriation of Government funds. Instead, money is taken out of the pocket of the common man and goes directly to line the personal pockets of the powers. Money follows such a direct course that there are minimum wastages and no one need complain of only fifteen paise reaching the ultimate beneficiary. The beauty of such a unique innovative scandal is that legal pundits may spend sleepless nights in trying to decide whether this can be called corruption as defined by the relevant laws.

To understand the mechanism of this unique scandal, one will have to understand the scheme of marketing of country liquor in MP. Government of MP purchases pure alcohol from the distilleries as soon as it is produced. A distillery then holds the alcohol as a bailee of the Government. Subsequently, the Government appoints contractors for marketing country liquor. Distilleries dilute pure alcohol by mixing it with about triple the quantity of water. This diluted stuff is sold as country liquor. It is packed in reusable bottles and an aluminum cap is put on top by distilleries. The contractors pick up the country liquor bottles from distilleries after making three separate payments first, for the cost of alcohol and excise on the same to Government; second, a returnable deposit for the bottle to the distillery; and third, a fixed amount to the distillery for the cap. At the time of floating the tender for country liquor, Government of MP fixes the amount payable by contractors for the cap and as deposit for bottles.

The genesis of the present scandal is the price of cap fixed by Government of MP. In the tender notice dated 7th March, 2000 published by The Excise Commissioner, Madhya Pradesh, the rate for caps for all sizes of bottles was fixed at Rs.2.25 per piece w.e.f. 1.8.2000 for two years 2000 2002. Enquiries with manufacturers of caps reveal that the price at which the caps are supplied by them to distilleries is in the range of Rs. 200 to Rs. 250 per one thousand caps plus excise 16% and sales tax 4%. One can safely assume that distilleries purchase a cap at less than thirty paise per cap, while Government of Madhya Pradesh tells the contractors to pay for the same cap a sum of Rs.2.25 each. The total profit made by the distilleries on account of this inflation of price of caps is a cool Two Hundred Thirteen Crores per annum (see box below) or a sum of Rs. 426 Crores over the two year period of the tender.

PROFITS OF MP & CG DISTILLERIES ON CAPS
(Annual, during 2000 - 2002)
(All figures in Crores are approximate) Quantities are annual
Pure Alcohol used for making country liquor in MP and CG 6 Crore Litres
Production of Country Liquor in MP and CG 24 Crore Litres
Total Cost of Alcohol consumed in MP and CG @ Rs.9 / Litre Rs. 54 Crores
CAPS FOR 1000 Litres of alcohol or 4000 litres of Country Liquor
750 ml bottles 10% 400 Litres 533 caps
375 ml bottles 20% 800 Litres 2133 caps
180 ml bottles 70% 2800 Litres 15556 caps
Total Caps used for 1000 Litres of alcohol 18222 caps
Price paid by contractors for caps used for 1000 Litres of alcohol Rs. 40,999.50
Cost paid by Distilleries for caps for 1000 Litres alcohol @ Rs.0.30 per cap Rs. 5,466.60
Total Price paid by contractors for caps used in MP and CG Rs. 246 Crores
Total amount paid by distilleries for caps used in MP and CG Rs. 33 Crores
Profit made by distilleries on caps (2000 - 01) Rs. 213 Crores

It can only be the creative and innovative mind of a Government led by a well-educated dynamic Chief Minister who can order that a bottle containing liquor worth only forty paise should have a cap more than five times the value. It should also come as no surprise that Madhya Pradesh and Chhatisgarh have bitter disputes on almost everything except the arrangement for marketing of country liquor.

The unique system of fleecing poor people of MP and Chhatisgarh has evolved over the years. In the tender notice dated 3rd March, 1999 the price of caps was fixed at Rs. 1.75 per cap. In the tender for 2000 2002, four important changes were made from the earlier year

  1. Price of caps increased from Rs. 1.75 to Rs. 2.25 per cap
  2. Pouches which used to cost only Rs. 0.60 per pack were discontinued
  3. Pack sizes were changed from 750 ml, 500 ml, 250 ml to 750 ml, 375 ml, 180 ml
  4. Product mix in the bottles (excluding pouches) was changed from 750 ml 30%, 500 ml 30%, 250 ml 40% to the present 750 ml 10%, 375 ml 20%, 180 ml 40%. The net effect of the changes has been to increase the profit made by distilleries on caps in a year from Rs. 72 Crores to Rs. 213 Crores (see box below).
PROFITS OF MP & CG DISTILLERIES ON CAPS
(During 1999 - 2000)
(All figures in Crores are approximate) Quantities are annual
CAPS FOR 1000 Litres of alcohol or 4000 litres of Country Liquor
Pouches 20% 800 Litres nil caps
750 ml bottles 24% 960 Litres 1280 caps
500 ml bottles 24% 960 Litres 1920caps
250 ml bottles 32% 1280 Litres 5120 caps
Total Caps used for 1000 Litres of alcohol 8320 caps
Price paid by contractors for caps used for 1000 Litres of alcohol Rs. 14,560-
Cost paid by Distilleries for caps for 1000 Litres of alcohol @ Rs.0.30 per cap Rs. 2,496-
Total Price paid by contractors for caps used in MP and CG Rs. 87 Crores
Total amount paid by distilleries for caps used in MP and CG Rs. 15 Crores
Profit made by distilleries on caps (1999 - 2000) Rs. 72 Crores

It is interesting to note that the total cost of country liquor sold in MP and CG in a year is just Rs. 54 Crores and the Government has ordered the customers to pay an astronomical sum of Rs. 246 Crores per annum for merely the caps of the bottles used for packing the liquor. Presently, the bottles are reused and are often not cleaned very well. In less than the amount that is being spent on caps, it would have been possible to get PET bottles as well as caps. Of course, pouch (use discontinued by the new policy) is another way of reducing packing costs. But then, the intention is obviously not to reduce costs or to offer better value to customers. Country Liquor in MP and CG has become a cash cow for the ruling powers.

A few weeks back there was a big hue and cry when a note was discovered by Income Tax department in the raids on the premises of a distillery in MP. The note mentioned a payment of Rs. 10 Crores to Chief Minister and Rs. 2 Crores to Excise Minister. This amount was calculated using the formula of Rs. 2.166 per Proof Litre. While the attention was riveted on the alleged payment of Rs. 12 Crores out of Rs. 54 Crores, (the total cost of alcohol), the cost of caps has just gone unnoticed by most. The ratio in which Rs. 426 Crores has been shared among the distilleries and the ruling powers of MP and CG is anybody's guess. But no one will believe that the Government of MP helped the distilleries make 213 Crores per year or 426 Crores over the period of two years of the tender with no ulterior motive.

Though the motives are clear, it will need detailed investigations to determine the ultimate beneficiaries of this well-designed scheme. While one must demand a thorough enquiry by a Central agency in the matter, one wonders if there is any Oscar or Noble for misusing the powers of the State for personal gain. If there was ever such an international award, Government of Madhya Pradesh will surely top the honours. Congratulations, Mr. Digvijay Singh, you have just beaten the likes of Lalloo, Jayalalitha and even an old timer like Rajiv Gandhi.

ANIL CHAWLA

11 November 2001

Please write to me your comments about the above article.
anil@samarthbharat.com
hindustanstudies@rediffmail.com



ANIL CHAWLA is an engineer by qualification but a philosopher by vocation and a management consultant by profession.


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