1. Food ministry pushes for LIC 10-year loan lifeline for FCI

Food ministry pushes for LIC 10-year loan lifeline for FCI

Faced with the threat of Food Corporation of India’s procurement operations taking a hit for want of funds, the Union food minister Ram Vilas Paswan has written to the finance ministry...

By: | New Delhi | Published: July 14, 2015 1:20 AM
farmers, unseasonal rains. Ram Vilas Paswan, Food Corporation of India, Food Safety and Standard Act, wheat crop, rabi, FCI procurement drive

FCI has estimated that the subsidy arrears due from the government would increase to Rs 78,000 crore by the end of the current fiscal. (Reuters)

Faced with the threat of Food Corporation of India’s procurement operations taking a hit for want of funds, the Union food minister Ram Vilas Paswan has written to the finance ministry asking for a prompt and favourable decision on his proposal to rope in Life Insurance Corporation (LIC) for a special 10-year loan to the cash-starved entity.

In response to a detailed proposal from the food ministry earlier, North Block had sought more time to decide on when and how its outstanding dues to FCI would be settled. The dues, which stood at Rs 56,127 crore at the end of the last fiscal, have since risen to over Rs 60,000 crore.

Under the proposal, the state-run insurer will buy special bonds worth Rs 40,000 crore to be issued by the procurement agency. The FCI bonds will be issued 30-40 basis points above the G-Secs of same tenure and will be redeemed at 10% per annum

The FCI’s case, food ministry sources said, needs to be addressed urgently as its ability raise funds from banks is severely constrained and the situation could become more acute by December, when its grain stocks usually hit a low.

FCI has estimated that the subsidy arrears due from the government would increase to Rs 78,000 crore by the end of the current fiscal. With several states now implementing the National Food Security Act, the actual food subsidy this fiscal could be higher than the budgeted outlay of Rs 1.24 lakh crore by Rs 20,000 crore or so. While the bulk of the food subsidy is routed through FCI, states like Madhya Pradesh and Chhattisgarh, which follow a “decentralised” procurement model, get their dues from the Centre directly.

FCI’s costs of procurement, storage and transportation have been rising steadily over the years, driven by the hikes in the minimum support prices and the excess grain stocks held by the corporation. At the start of July 2015, FCI had grain stocks of 54 million tonnes against the buffer norm of 41 million tonnes. In June 2012, the stocks stood at a record 82 million tonnes.

“If the outstanding dues are not paid on time, we would not able to pay to state agencies for grain procurement,” an FCI official said.

Given the delay in payments from the government, FCI usually depends on an annual cash credit limit of Rs 54,495 crore from 62 public sector and scheduled banks to carry out its operations. With the limit having been breached, it needs special succour.

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