1. Centre forced to cut Rs 40,000 cr expenditure, axe falls on food subsidy

Centre forced to cut Rs 40,000 cr expenditure, axe falls on food subsidy

The Centre had to cut expenditure by around Rs40,000 crore from the revised estimate (RE) to nearly achieve its 2016-17 fiscal deficit target (RE) of 3.5% of GDP; the actual deficit turned out to be Rs5.35 lakh crore or 3.51%, to be precise. It is understood that the axe fell primarily on food subsidy: Food […]

By: | New Delhi | Published: June 22, 2017 6:16 AM
gdp growth, india's gdp, cut expenditure, fiscal deficit target The Centre had to cut expenditure by around Rs40,000 crore from the revised estimate (RE) to nearly achieve its 2016-17 fiscal deficit target (RE) of 3.5% of GDP; the actual deficit turned out to be Rs5.35 lakh crore or 3.51%, to be precise.(Reuters)

The Centre had to cut expenditure by around Rs40,000 crore from the revised estimate (RE) to nearly achieve its 2016-17 fiscal deficit target (RE) of 3.5% of GDP; the actual deficit turned out to be Rs5.35 lakh crore or 3.51%, to be precise. It is understood that the axe fell primarily on food subsidy: Food Corporation of India, through which the bulk of this explicit subsidy is routed, was told in late March that Rs25,000 crore of the Rs1.03 lakh crore in subsidy released to it in October 2016 was to be a treated as a loan from the National Small Savings Fund (NSSF). The “book adjustment” had stood the government in good stead in meeting the deficit target. Had the adjustment not been done, the deficit in 2016-17 would have risen to 3.68% of GDP. Though the Centre and not FCI is the debtor, FCI has reason to worry as the money borrowed from NSSF (at a rate of 8.8%) has to be returned in yearly instalments in five years. Conventionally, there was a gap between the budgeted level of subsidies and the needs of FCI and other grain procuring agencies, resulting in accumulation of the government’s dues to these entities. Such dues to FCI were estimated at Rs62,000 crore by end-March and with part of the subsidy released in the year now converted into an NSSF loan that entails repayment obligations, FCI faces a further squeeze on its liquidity and grain procurement activities.

“By November-December 2017 when the kharif paddy procurement peaks, FCI might face huge cash crunch, putting procurement of kharif rice in jeopardy. The corporation may be forced to seek fresh short-term loans for its procurement operations despite these being very costly,” an official said. While the FCI’s subsidy requirement in the current financial year is estimated at Rs 1.16 lakh crore, the Centre’s budget estimate is Rs 9,000 crore less. In February 2017, FCI had got Rs 45,000 crore from NSSF as a loan under a five-year special arrangement; the loan is being repaid through equal annual instalments.

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The additional NSSF facility of Rs 25,000 crore would mean that the annual repayment obligations would be onerous for FCI. Unless the government releases the subsidy arrears and promptly compensates FCI for the NSSF loan burden imposed on it, the corporation would be in trouble. In 2016-17, FCI had paid Rs 7,200 crore towards interest on short-term loans. Such expenses incurred by FCI eventually inflate the government’s food subsidy bill. The FCI incurs a subsidy of Rs 21.09 per kg in the case of wheat and Rs 29.64 per kg for rice. It procures 55-60 million tonnes of rice and wheat annually. FCI’s costs of procurement, storage and transportation have been rising steadily over the years, driven by the annual rise in the minimum support price and the excess grain stocks held by the corporation.

  1. A
    Arun Kottur
    Jun 22, 2017 at 9:43 am
    has government TIME to make public election fundings of all political parties...to start with BJP
    Reply

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