The government's policy of importing pulses to bring down prices in the domestic market has ended up benefiting a handful of big private traders at the cost of the state trading companies while leaving consumers high and dry.

According to the Comptroller and Auditor General's (CAG) report tabled in Parliament on Tuesday, state trading agencies MMTC, STC, NAFED and PEC piled up a huge loss of Rs 1,201 crore in importing pulses but domestic prices still did not fall as supplies were not promptly made to the market.

The report points out that the ministry of consumer affairs, food and public distribution headed by Sharad Pawar failed to identify appropriate channels for the distribution of imported pulses and work out a detailed distribution strategy as mandated under the scheme.

Instead, the importing agencies disposed of these stocks through a restrictive tendering process. "The tender conditions with their high minimum bid quantities and earnest money deposits ensured that basically large private players, who were also major players in the pulses market would submit the bids leaving the small players out of the loop," the report states.

An audit test check revealed that as much as 6.08 lakh metric tonnes representing a massive 73 per cent of the quantity of sales test- checked in the audit was sold to just four private players. These were LMJ International/ LMJ Overseas, R. Piyarelal Imports and Exports Pvt Ltd / RP Foods, Prime Impex and SRS Pvt Ltd.

Apart from LMJ the other three buyer groups were also among the top 10 importers of pulses in the country during this period, said the report.

The prices offered by the bidders were substantially lower than the import prices paid by the state trading agencies as well as the prevailing wholesale prices, indicating cartelisation.

Pulses imported by the state agencies were thus sold at huge losses. "The private buyers also did not lift the stocks on time as a result of which the availability of pulses in the market was restricted for long periods," the report adds.

Due to the prevailing shortage the retail prices of pulses increased at a much faster rate than the corresponding wholesale prices during the period 2006 to 2011. This growing divergence between wholesale and retail prices pointed towards increasing control of the market by private traders, the report states.

The divergence continued despite the import of pulses by designated agencies on government account through a special subsidy scheme.

The report also highlights the fact that the state trading agencies imported yellow peas on the ground that these were a reasonably good substitute for other types of pulses and that their prices were comparatively lower. However, the imported peas found few takers in the domestic market and had to be sold after considerable delays at a heavy loss.

The government directed the agencies to continue importing the pulses in spite of the fact that the agencies had huge unsold stocks.

The report found that the Union Cabinet decided to allow the state- owned agencies to import yellow peas in March, 2009 despite the ministry of consumer affairs stating in November, 2008 that there was no need for such imports.

A huge loss of Rs 897 crore, of the total loss of Rs 1,201 crore, was on account of the import of yellow peas, which should not have taken place.

According to the report, PEC suffered the maximum loss of Rs 472.72 crore, followed by Nafed (Rs 287.27 crore), STC (Rs 232.83 crore) and MMTC (Rs 208.50 crore).