I'm obviously not privy to the inner workings of Indian politics, but I can give you a possible sequence of events. One of the reasons that the food is rotting is because of poor storage. The government has decided that jute, and only local jute, can be used to make bags to store the grain. Foreign jute or other materials, such as plastic, are not permitted.
It's very possible that the local jute industry was given protection by the government because they bribed the appropriate civil servants/elected officials. Neither the bribers or the bribees will ever face any sort of prosecution for their actions, despite the fact that giving or taking bribes is clearly illegal.