Government sources told The Hindu that at PDS packaging centres, new unbranded bags were being replaced with used ones.

Jute bags meant for packaging of foodgrains under the Public Distribution System (PDS) allegedly provided their manufacturers — in league with some officials of procuring State government agencies, quality insurance inspectors and middlemen — an opportunity to siphon off thousands of crores in government revenue.

So serious is the scam that the Prime Minister’s Office has taken note of it and the Central Bureau of Investigation has been directed by the Union Textiles Ministry to inquire into the allegations. An investigation has been launched.

Government sources told The Hindu that at PDS packaging centres, new unbranded bags were being replaced with used ones. The new ones were diverted to middlemen who sold them off to clients and mills in other States at half the government price.

This was recently noticed by Textiles Ministry officials in Haryana and Punjab, from where jute bag consignments were being allegedly diverted to Odisha, Telangana, Andhra Pradesh and Tamil Nadu. The stolen bags did not carry the name and licence number of the manufacturers.

As the biggest buyer, the government purchases about 9 lakh tonnes of jute sacks to pack foodgrains. State government agencies procure bags worth about Rs. 5,000 crore every year. The current government procurement rate is Rs.43 per bag, while in the open market it sell for Rs.15-20.

It has been alleged that bags supplied to a State would find their way back to the mills, which sold them once again to the government.

Last month, following complaints filed by RTI activist Gouri Shankar Jain, the Ministry detected massive irregularities in supplies to the Bihar State Food and Civil Supplies Corporation by a Bihar-based manufacturer. Mr. Jain found that the jute mill, which had won a contract for 60,000 bags, supplied mostly substandard/used ones through other mills, including two based in West Bengal. “Office records revealed that the trucks which transported the consignments were from West Bengal, Madhya Pradesh, Chhattisgarh, Jharkhand, Punjab and Haryana,” said Mr. Jain.

Internal government communications accessed by The Hindu reveal that the Jute Commission had received reports of jute bag thefts from the stocks sent to agencies in Punjab and Haryana. The bags were being dispatched to Telangana and Andhra Pradesh. The Andhra Pradesh government had also filed complaints about the local markets being flooded with cheap jute bags.

According to the Textiles Ministry, one such consignment of 30,000 bags was recently intercepted at a checkpoint by the Commercial Tax Department in Telangana. Sold for Rs. 6 lakh (much below the government price), the consignment had been sent by a Haryana-based company through a Delhi-based transport firm that existed only on paper. The carriage cost of Rs.22,000, shown on paper, was way below the market rate.

The Ministry believes the bags came from West Bengal, as there are no manufacturing units in Haryana. “In the past one year, 65 such consignments worth Rs.8.5 crore have been sent to Telangana from Punjab and Haryana. In the latest Telangana case, a Haryana-based middleman had sent 14 consignments. This unfair practice also causes a huge loss of value-added tax to the State governments,” Mr. Jain said.

The Textile Ministry has also obtained bank transaction records of the accused. They reveal several mills and their front companies have paid his company huge sums of money.