With the finance ministry releasing Rs 20,000 crore for food subsidies last week, Food Corporation of India (FCI) has postponed its plan to raise around Rs 50,000 crore as a short-term loan from banks this month to fund its operations.
The FCI aimed to avail short-term loans, which have a maturity of 90 days, from scheduled banks to address the cash flow mismatch due to inadequate release of food subsidy in the second quarter of the current fiscal.
Against the FCI’s expenditure of Rs 56,000 crore in the first quarter of the current fiscal, the ministry has allocated Rs 32,500 crore from the food subsidy budget.
The ministry has provided Rs 10,000 crore in the current fiscal as an advance for salaries and funds, which is aligned with the food subsidy budget till the end of the fiscal.
Sources told FE that the finance ministry will make adequate provisions for food subsidy costs in the July-September period, which is also considered a “lean” period in terms of grain procurement. Procurement of paddy starts on October 1.
Officials said that in the first quarter of the current fiscal, FCI availed a short-term loan of Rs 20,000 crore, which is a common practice. Raising more short-term loans would increase FCI’s costs due to higher interest outflows.
For 2022-23, the central government has allocated Rs 2.06 trillion for food subsidy expenditure, of which Rs 1.45 trillion or 71% is earmarked for FCI. The rest of the food subsidies are channeled directly to countries that follow a decentralized procurement system.
However, after the extension of Pradhan Mantri Garib Kalyan Anna Yojana till September 30, an additional Rs 80,000 crore (Rs 56,000 through FCI) will be spent under the food subsidy budget.
The corporation has been relatively comfortable with its cash position in the last one year as the government promptly announced food subsidy amounts, after the practice of taking National Small Savings Fund (NSSF) loans to fund the subsidy was stopped in the FY22 budget for transparency.
The central issue prices of Rs 3, Rs 2 and Re 1 per kg of rice, wheat and coarse grains, respectively, under the National Food Security Act (NFSA) have not been revised since 2013. On the other hand, the economic cost of FCI (minimum support price to farmers, storage, transportation and other costs) of rice and wheat for 2022-23. is Rs 36.70 and Rs 25.88 per kg, respectively.
FCI procures and distributes more than 60 million tons of wheat and rice annually. The corporation manages procurement, storage and transportation of rice and wheat to states for distribution, mainly for NFSA and other welfare programs.
Due to the large mismatch between the rising costs due to the open procurement of rice and wheat from farmers under Minimum Support Price Operations, and the cost of carrying excess stocks between 2016-17 and 2020-21, the government has provided FCI funds from NSSF loans taken from 2016-17 to 2020-21 in lieu of food subsidy.
Finance Minister Nirmala Sitharaman in her budget speech for 2021-22. announced an end to the practice of off-budget borrowing from the next fiscal by earmarking Rs 3.35 trillion for repayment of NSSF loans.