Rail gate-Report

Railgate: Loss of Rs17,000 crore just tip of the iceberg?

AK Ramdas | 10/09/2013

The CAG discovered crores of rupees vanished at the Railways due to the twin-freight policy! There is a need to be practical in plugging loopholes in freight rate, which leads to such malpractices

 

The Comptroller and Auditor General (CAG) has discovered the tip of the freight iceberg when they carried out a test audit recently, according to media reports. Apparently, this has been going on for a couple of years now. Initial reports indicate that because of the existence of twin-freight rate policy, a large number of merchants have ‘managed’ to pay the lower rate on the pretext of supplies for domestic use, but actually used it for export shipments! The Railways charge lower rate for transportation of iron ore to domestic steel makers, and a much higher rate (three times actually) for export cargo. Incredible! India, at its worst!

 

This has been done without supplying mandatory documents, such as affidavits and indemnity bonds. According to CAG test audit, the recoverable freight dues, for actual export shipments effected, is estimated at Rs17,000 crore, which they suspect could be much more.

 

At the moment, multiple agencies of the Central Bureau of Investigation are working on this fraud on under invoiced freight (difference between export and domestic rates) that may show the recoverable freight could be in excess of Rs50,000 crore when the investigations are completed.

 

How the merchants of iron ore managed to get rakes and despatch the goods to its destination is a mystery and one can only surmise that this mammoth operation involving some 400 rakes, without ‘insider’ help, is just not possible.

 

CAG preliminary report indicates that a minimum of 126 parties obtained the rakes, without the proper documents and managed to lift and despatch the ore. This is only possible, thanks to the unstinted co-operation extended by railway staff in getting rake allocation, loading at site and moving the ore to its port destination for onward shipments.

 

Obviously, the whole bunch of staff at the port, from entry point to inspection, loading and verification of the required export documents have been in cahoots with merchants, for this to happen.

 

The CBI has been carrying out the investigations for sometimes now, and it will be a few months more before their findings are made public. CAG officials are firmly of the opinion that without the connivance of railway administration and the port staff, movement of such large quantity of ore is not possible.

 

At the moment, there is no export, due to the ban, but given the present state of affairs in relation to extremely difficult current account deficit (CAD) status, the Indian government may be forced to revive export, though the international market is also slack, but demand may begin to occur in the next few months.

 

Digressing for a moment, what will the CBI find? The most possible scenario is that many of the merchants may have simply vanished; companies have been sold to new owners; many may have benami owners; files and related documents missing at all important contact points and a few may eventually pay a fine or arrange for an ‘out of court’ settlement!

 

Railways need to pull up their socks. They need to be practical in plugging loopholes in freight rate, which leads to malpractices, such as these. First, we need to revive our export and it may be prudent to lower the transportation (freight) charges; second, our domestic industry is also in bad shape and needs revival and to encourage both to grow, why not average the freight rate so that there is no scope for this malpractice?

 

In addition, unless the mandatory documents are made available and bank guarantees are in place to cover the freight element, rakes should not be released and these again needs to be subject to surprise inspection and checks en-route and before entry to the prohibited port area. Such strict measures are likely to bring down the fraud that has now been discovered but the CBI must carry through their thorough investigations so that the guilty is severely punished.

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)