Short-Term Fix for FCI: Rs. 50,000 Crore Loan to Meet Funding Requirements

The Food Corporation of India (FCI) had planned to raise Rs 50,000 crore as short-term loans from banks to finance its operations due to the insufficient release of food subsidy expenses by the Centre. However, following the release of Rs 20,000 crore by the finance ministry towards food subsidy bills, FCI has deferred this plan.

Initially, FCI aimed to avail these short-term loans, with a 90-day duration, from scheduled banks to address cash flow mismatches caused by the delayed release of food subsidies in the second quarter of the current fiscal year. During the first quarter, FCI had expenses of Rs 56,000 crore, while the ministry had allocated Rs 32,500 crore under the food subsidy budget. Additionally, the ministry provided Rs 10,000 crore in the current fiscal as salary and means advances, which is adjusted against the food subsidy budget by the end of the fiscal year.

The finance ministry is expected to ensure sufficient provisioning of food subsidy expenses in the July-September period. In the first quarter of the current fiscal, FCI had already availed a short-term loan of Rs 20,000 crore, a common practice. However, raising more short-term loans would have increased FCI’s expenses due to higher interest outflow.

For the fiscal year 2022-23, the central government allocated Rs 2.06 trillion for food subsidy expenses, with Rs 1.45 trillion or 71% provided to FCI. The rest is directly routed to states that follow a decentralized procurement system. Following the extension of the Pradhan Mantri Garib Kalyan Anna Yojana until September 30, an additional Rs 80,000 crore (Rs 56,000 crore through FCI) will be spent under the food subsidy budget.

FCI’s cash position has been relatively stable over the last year, as the government promptly released food subsidy amounts after ceasing the practice of taking National Small Saving Fund (NSSF) loans for subsidy financing in the FY22 Budget. This change was made to enhance the transparency of government finances.

The central issue prices under the National Food Security Act (NFSA) have not been revised since 2013, while FCI’s economic cost of rice and wheat for 2022-23 is significantly higher. FCI is responsible for procuring, storing, and transporting over 60 million tonnes of wheat and rice annually, primarily for NFSA and other welfare schemes.

Due to a large mismatch between rising expenses and the cost of carrying excess stocks, the government had previously funded FCI through loans taken from the NSSF between 2016-17 and 2020-21 in lieu of food subsidy. However, in the 2021-22 Budget, Finance Minister Nirmala Sitharaman announced the end of this practice of extra-budgetary borrowing, making provisions of Rs 3.35 trillion towards the payment of NSSF loans.



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