1. In a first, Centre to borrow Rs 45,000 cr from National Small Savings Funds to clear FCI dues

In a first, Centre to borrow Rs 45,000 cr from National Small Savings Funds to clear FCI dues

In a pioneering initiative, the Centre is seeking to dip into the National Small Savings Fund (NSSF) under a five-year special arrangement, with a view to clearing the dues to the Food Corporation of India (FCI), last pegged at R50,000 crore.

By: and | New Delhi | Updated: November 22, 2016 7:04 AM
(Associated Press) Official sources told FE that as per a Cabinet note floated by the finance ministry, the NSSF will release Rs 45,000 crore from its corpus to the Centre before the end of the current financial year and the latter will repay it in five equal annual instalments, starting FY17 itself. (Associated Press)

In a pioneering initiative, the Centre is seeking to dip into the National Small Savings Fund (NSSF) under a five-year special arrangement, with a view to clearing the dues to the Food Corporation of India (FCI), last pegged at Rs 50,000 crore.

Official sources told FE that as per a Cabinet note floated by the finance ministry, the NSSF will release Rs 45,000 crore from its corpus to the Centre before the end of the current financial year and the latter will repay it in five equal annual instalments, starting FY17 itself.

The move will relieve FCI of the need to resort to expensive cash-credits and short-term loans to undertake its operations uninterruptedly.

The proposed loan from NSSF will cost the Centre an annual Rs 3,500 crore (at 8.8% interest), while FCI currently incurs Rs 8,500 crore (at 10.2%) on short-term loan arrangements with banks. With the delayed release of funds to FCI, traditionally, the arrears had mounted.

Paring of food grain stocks helped the government to contain food subsidy bill below the original budget estimate in FY16 and so dues to FCI went down by around Rs 6,000 crore during the year (see chart). This year too, the food subsidy is likely to be contained within the budgeted amount of Rs 1.35 lakh crore (of which Rs 1.03 lakh crore is routed via FCI), despite the National Food Security Act obligations.

While the NSSF facility would be used to retire 90% of Rs 50,000 crore owed by the Centre to FCI, the rationalisation of grain procurement and stocks and also sale of excess wheat in the open market are expected to result in savings to the tune of Rs 5,000 crore. “From FY17, we expect subsidy payments to FCI to be prompt and adequate,” said an official.

It is a win-win situation for all as in recent years there has been less demand for NNSF funds from states. NSSF, currently pays 7%-8.5% on various deposit schemes. The additional amount due to the new arrangement would be provided in the revised estimate for FY17.

Finance ministry manages the NSSF cumulative corpus, which was estimated to rise by Rs 27,168 crore to Rs 10.18 lakh crore in FY17. With the delayed and inadequate release of subsidy funds by the finance ministry, the FCI often needs to resort to raising short-term (90-day) loans after exhausting its cash credit limit (CCL) of Rs 54,000 crore with designated banks. It had raised about Rs 20,000 crore each as short-term loans in FY14, FY15 and FY16.

The NSSF proposal was the second proposal to be considered by finance ministry while last year it had rejected a food ministry plan that the government be guarantor to the 10-year bonds proposed to be issued by LIC to bridge the FCI’s resource gap.

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