The National Dairy Development Board (NDDB) founded by Dr Verghese Kurien in 1965 is credited with pioneering the farmer cooperatives movement in the country and Operation Flood, which took India from a country of acute milk shortages to becoming the largest producer of milk in the world.
Over time, NDDB has grown so big that the government seems to have lost sight of how hundreds of crores of rupees are regularly transferred by the Board to subsidiaries and further step-down subsidiaries. What seems astonishing about NDDB is that the subsidiaries themselves seem to vanish with regularity and without any explanation from its annual reports.
Whistleblowers inside NDDB are perturbed at what they call a growing trend of several hundred crore rupees of public money being pumped into subsidiaries without any discussion on what happens to the funds.
Data shared with Moneylife from NDDB’s own annual reports tabled in Parliament gives credence to their allegations.
Before we discuss the charges, it is important to know that central government’s approval is required for the creation of every subsidiary company of NDDB as well as their winding up. This applies to step-down subsidiaries as well.
Interestingly, not all chairpersons of NDDB have bothered with this requirement, and the government has remained silent too. It is also important to know that NDDB has its own statute and the giant organisation has often argued that the Companies Act is not applicable to it.
However, what we mention here is basic disclosures that apply to any company dealing with public funds.
NDDB has written that according to its records, between 2004-05 and 2017-18, Rs4,477.95 crore was lent of which Rs2,424.47 crore was lent to dairy cooperatives and Rs2,053.48 crore was lent to its own subsidiaries. (Corrected this para as we had taken into considerations all term loans and working capital loans, which was an error.)
Insiders allege that a study of NDDB’s accounts would reveal that for every rupee that it lent to dairy cooperatives between 1998 and 2010, around 50 paise went to some of its own subsidiaries. However, the reply from NDDB shows, for every rupee lent to dairy cooperatives between 2004-05 and 2017-18, nearly another rupee was lent to its own subsidiaries, the bulk of which went to Mother Dairy Fruit and Vegetable Ltd (Mother Dairy).
The biggest beneficiary of NDDB’s largess is Mother Dairy, which, over the years has built a huge franchise and brand to compete with Amul.
The annual reports of NDDB show large transfer of funds to around 20 odd subsidiaries, many of which are step-down subsidiaries – reminiscent of the failed Infrastructure Leasing & Financial Services (IL&FS) group with 347 odd entities.
These units seem to vanish at regular intervals. Only four subsidiaries are now listed in the latest annual report of 2017-18. These are - Mother Dairy Fruit and Vegetables Ltd (Delhi), NDDB Dairy Services (Delhi), IDMC Ltd (Anand), and Indian Immunologicals (Hyderabad).
Mother Dairy: This company has nine subsidiaries where NDDB is shown as holding company. But all these companies are missing from the NDDB’s annual reports in various years from 2002 onwards.
Mother Dairy Foods Ltd was last reported in 2002-03
Parag Milkfoods (UP) Ltd, a joint venture (JV) last reported in 2004-05
Mother Dairy Delhi Ltd, a JV last reported in 2005-06
Mother Dairy Food Processing Ltd has vanished from its reports after 2006-07
Mother Dairy India Ltd., vanished from NDDB annual reports from 2006-07
Milma Foods Ltd, a JV was last reported in 2005-06
Aanchal Milkfoods Ltd, other JV that was last reported in 2005-06
Maathashri Milkfoods Ltd, a JV has last been reported in 2005-06 and
Safal National Exchange of India Ltd, a JV of which there is no record at all.
Why is the disappearance significant? Because hundreds of crore rupees extended to these entities for multiple purposes appear to have gone down the drain along with the companies, without any disclosure. The auditors have had no comments to offer about these vanishing entities.
Now let’s look at the sums involved. Between 2004-05 and 2011-12, Mother Dairy received funds worth Rs411 crore in the form of investment, grant and other considerations from NDDB. It was also provided with subsidised dairy commodities worth Rs405 crore and other goods worth Rs542 crore at discounted price. NDDB also allowed
Mother Dairy the use of an entire office complex in Noida
for several years.
Further, NDDB extended loans of Rs688.7 crore to Mother Dairy at below market interest for over past 13 years. If that weren’t enough, seven subsidiaries of Mother Dairy separately received grants from NDDB.
In return, over a 13-year period, Mother Dairy has paid a total dividend of Rs55 crore to NDDB, which is a return of less than 2%.
NDDB Dairy Services: This company and several subsidiaries which were set up with NDDB as the holding company no longer exist. They are Indiagen Ltd (which was last reported in 2008-09), Dhara Vegetable Oil and Foods Co Ltd (last reported in 2007-08), Bharat Aseptic Packaging Ltd (last reported in 2001-02), Bhagnagar Vegetable Products Ltd (last reported in 2001-02), Kiriya Milk Industries of Lanka Pvt Ltd (last reported in 1990-2000), and Hindustan Packaging Co Ltd (last reported in 1998-99 after it was sold out).
It turns out that Dhara Vegetable Oils and Foods was set up in 2004-05 and in less than three years amalgamated with Mother Dairy in 2007-08. Mother Dairy now continues to make the Dhara brand of oil. No explanation is offered for hundreds of crores wasted in this exercise.
Safal is another confusing name. On the one hand, Mother Diary has booths selling fresh fruit and vegetables under this brand name in Delhi and the national capital region (NCR) and in some parts of Odisha. On the other hand, Safal National Exchange of India Ltd was a curious joint venture with Jignesh Shah’s Financial Technologies group with the ambitious plan to start commodity trading! It was quietly wound up, say insiders, and no information is available in the public domain.
In the 1980s, NDDB had the foresight to start Hindustan Packaging Co at Baroda as a JV with TetraPak of Sweden with 80% ownership. The JV ran into problems in a decade and the Board sold its entire stake to TetraPak, which continues to package so many of NDDB’s products.
NDDB Dairy Services: NDDB Dairy Services (NDS) was set up as a private limited company in 2009 where NDDB subscribed to Rs1 crore as share capital. Soon, it was converted into a not-for-profit company under Section 25 of the Companies Act (now Section 8 of Companies Act, 2013). When NDS was first incorporated as a private limited and wholly owned subsidiary company of NDDB, the Board transferred Rs199 crore to NDDB Dairy Services, in the form of contribution of capital for purchase of equity of an equal amount.
Indian Dairy Machinery Co Ltd (IDMC): In 1992, IDMC became a wholly owned subsidiary company of NDDB. The company offers processing and packaging solutions to its customers across dairy, cattle feed, pharmaceutical, beverage and thermal segments. IDMC is a leading manufacturer of tankages, process vessels, plate heat exchangers, flow items and specialized key process equipment. For FY2017-18, IDMC reported total revenues of Rs803.46 crore.
Indian Immunologicals Ltd: During 1999-2000, Indian Immunologicals was set up as a wholly owned subsidiary; Mother Dairy was set up in 2000-2001 and Dhara Vegetable Oil and Foods, the next year. Over the next few years or by 2004-05, NDDB had over a dozen subsidiaries as per its annual reports.
(Source: NDDB Annual Reports tabled in the Parliament)
Indian Immunologicals has three subsidiaries where NDDB is shown as holding company, including Pristine Biologicals Ltd (2017-18), Indiagen Ltd (JV- 2006-07) and Indiagen Ltd (2009-10).
Dhara Vegetable Oil and Foods Co has one unit with NDDB as a holding company. This company, Bhavngar Veg Products Ltd was last found mention in 2003-04 in the annual reports of NDDB.
So what happened to the other 16 companies that were shown as subsidiaries or sub-subsidiaries of NDDB in subsequent years? Also what about the huge investment NDDB has made in all these companies?
All these facts raise fundamental questions of probity and integrity, both in the governance of Mother Dairy and in the actions of the powers that were in the Board in releasing such vast sums of monies from the NDDB Fund as grants and other equivalent assistance to its wholly owned subsidiary.
This Fund was held in trust for the development of India’s about eight lakh dairy farmers. But instead it was used mainly to fund subsidiaries and step-down subsidiaries of the dairy development board, the annual reports show.
Who are the people responsible for this massive waste of public money? Are there any checks and balances? What about audits by the Comptroller and Auditor General (CAG)? Like many professionally run organisations that get captured by a powerful management cabal, NDDB has worked actively to avoid a CAG audit.
NDDB lost a case in the Delhi High Court in 2010 to evade a CAG audit. The judgement said that CAG has full freedom to audit NDDB including conducting a performance audit, but this has not happened. In response to an unstarred question in the Rajya Sabha on 28 December 2018, the government has affirmed this position.
Although government organisations, NDDB and its subsidiaries are also skilled at evading queries under the Right to Information (RTI) Act. NDDB has managed a stay on the applicability of RTI and Central Vigilance Commission (CVC) Act on Mother Dairy. The central government is playing along – as it has been doing with the two first line regulators the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Letters and complaints sent to the CVC about NDDB are systematically buried.
Given that NDDB has been the pride of Gujarat, it is important that the Prime Minister should intervene and make the organisation more accountable for public funds and to farmers and milk producers who are its lifeline. In fact, bringing NDDB back on track is important for the entire dairy movement.
Moneylife sent emails to top executives of NDDB and joint secretary of department of Animal Husbandry and Dairying in the central government. NDDB official told us that they have received our mail and would soon respond.
1) Discrepancies in the numbers occured because NDDB's annual reports make it difficult to decipher faces. Since the mix of term loans and working capital loans were never shown separately by NDDB, all the loans were assumed as working capital loans and hence a linear addition, which was error.
2) Moneylife has removed all comments, purportedly by NDDB insiders, claiming that whistleblowers have been identified and acted upon. This is a threat and does not behove a statutory body like NDDB. Similarly, NDDB’s response to Moneylife has also been posted by a third party - we have let that remain. However, it signals the strange manner in which this statutory body is functioning.