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Not ₹1,160cr but ₹5.6L: Government body disputes rice-ethanol 'scam' scale
14 Jul 2026

The Food Corporation of India (FCI) has dismissed allegations of a massive diversion of subsidized rice for ethanol production in Madhya Pradesh.

The claims suggested that five lakh tons of rice worth ₹1,160 crore were illegally diverted.

However, the FCI said these reports are "completely baseless."

"The figure of ₹1,160 crore merely represents the value of rice legitimately issued by FCI against payment received from the concerned distilleries....and cannot be construed as the value of the alleged diversion," it clarified.

Investigation not related to entire quantity of rice supplied
FCI

The FCI said its probe into the alleged diversion of subsidized rice meant for ethanol production under the ethanol blending program was limited to 242.50 quintals, valued at around ₹5.63 lakh.

"It pertains to an alleged diversion of 490 bags (242.50 quintals) of rice involving an estimated value of about Rs 5.63 lakh. Therefore, the media reports equating the entire value of rice supplied under the ethanol blending program with the alleged diversion are misleading."

FCI supplied nearly 5.39 lakh tons of rice
Supply details

To boost ethanol blending and decrease reliance on imported fossil fuels, the Centre has allowed surplus foodgrain, including rice held by FCI, to be supplied to ethanol makers.

The FCI supplied 2.98 lakh tons of rice to MP distilleries during the 2024-25 Ethanol Supply Year at ₹22.50 per kg.

In the 2025-26 supply year till June 30, 2026, another 2.41 lakh tons were supplied at ₹23.20 per kg.

This brings the total supply to around 5.39 lakh tons, PTI reported.

Investigation was initiated after detection of irregularities
Ongoing probe

The investigation into the alleged diversion of subsidized rice began after government monitoring systems detected irregularities in rice movement in early June 2026.

The investigation focuses on a consignment of the government's custom-milled rice (CMR) that investigators claim never arrived at its destination, an ethanol facility in Chhindwara.

Instead, investigators discovered it parked inside a private rice mill in Waraseoni, where the accused "intended to recycle rice under the 2025-26 Custom Milling Programme and re-deposit it under the same scheme."

Authorities are uncovering a 'circular trade' loop
Accused

According to police, Rahul Pratap, an authorized representative of AVJ Agrico Pvt. Ltd., "intended to divert the rice received from the FCI to a local rice mill and purchase cheaper rice for use in ethanol production."

NDTV reported that authorities are uncovering a "circular trade" loop.

In this arrangement, ethanol plants allegedly sold their cheap government rice to private millers for a quick profit. The millers then repackaged the grain and returned it to the government as "newly processed" rice.

SIT formed to probe the matter
SIT formation

An FIR was registered by the Madhya Pradesh Food Department on June 5, and a joint FCI-Department of Food and Public Distribution team inspected the site on June 11.

The corporation has since withheld the security deposit of the concerned distillery and stopped further rice allocations.

The state civil supplies corporation has blacklisted a rice mill involved in the case and imposed a ₹44.12 lakh penalty on it.

The state government has formed a SIT to probe the matter further.

Investigation now focuses on whether ethanol plants actually converted rice
Trade allegations

What started as an investigation into one suspicious truck has now expanded into a large-scale probe involving 17 seized trucks, 56 rice mills, and 22 ethanol plants, NDTV reported.

The investigation is now focused on whether ethanol plants actually converted subsidized rice into fuel or if they funneled it through private mills back into government warehouses.

Four people have been arrested so far, according to a senior police officer associated with the SIT.