LUCKNOW, India (TrustLaw) - Millions of dollars worth of food grains intended for poor Indian families have been siphoned off and sold locally and abroad in a corruption scandal involving hundreds of local government officials, investigators said on Thursday.

Police and federal agents in India’s northern state of Uttar Pradesh are probing allegations that from 2001 to 2007, millions of tonnes of rice and wheat were diverted to other parts of the country and smuggled across the border to Nepal and Bangladesh. The food was meant to be sold at subsidised rates to households living below the poverty line.

The Central Bureau of Investigation (CBI) and police say the fraud appears to be “widespread” and “highly organised” involving a huge number of players.

“The number of government officials involved in the case may run into the thousands … the majority are junior civil servants but there are senior ones too,” a CBI official said.

“Apart from this, the involvement of a large number of transporters, traders, and shop owners is also feared,” he said.

He said the investigation was on-going, but preliminary estimates suggested that around three million tonnes worth of hundreds of millions of dollars was stolen.

The corruption scandal is one of many to have hit the Indian headlines in recent months. One of the biggest, a $39 billion mobile phone license scandal, has discredited Prime Minister Manmohan Singh’s government and led to the sacking of the telecommunications minister.

POOR FAMILIES

Despite being Asia’s third largest economy, India has around 400 million people who are living below the poverty line.

The government’s largest welfare scheme -- the Public Distribution System (PDS) -- aims to target these people and provide poor consumers with basic food and non-food items at below market prices.

Under the PDS, federal authorities buy food grains directly from farmers and then allocate it to state governments, which are responsible for selling it to poor families through a network of shops throughout the country.

But investigators say in at least 18 of Uttar Pradesh’s 72 districts, the food grains did not reach the poor and were siphoned off and smuggled by rail and road to be sold in the open market.

Food grains meant for food-for-work schemes and children’s mid-day meal schemes were also stolen, they say.

“The government acknowledges heavy losses,” Vijay Shanker Pandey, principle secretary at Uttar Pradesh’s information department, told reporters recently.

“We are committed that all the people involved in the crime be exposed and punished.”

The ruling government in Uttar Pradesh, the Bahujan Samaj Party, has now turned the spotlight on its rival and main opposition, the Samajwadi Party, which was in power at the time.

A recent high court ruling has directed the CBI to expedite the inquiry and to conclude its work within a year.

The court said action under Prevention of Money Laundering Act and Foreign Exchange Management Act should be taken immediately against all those found guilty.

The federal government has said this is an issue for the state authorities to address, adding that New Delhi had no knowledge or involvement in the fraud.