1. Unpaid subsidy means FCI to be starved of funds by December

Unpaid subsidy means FCI to be starved of funds by December

Come January, Food Corporation of India (FCI), under a severe financial crunch, may be forced to trim its procurement operations.

By: | New Delhi | Updated: November 12, 2015 8:12 AM
Food Corporation of India

Come January, Food Corporation of India (FCI), under a severe financial crunch, may be forced to trim its procurement operations. (PTI)

Come January, Food Corporation of India (FCI), under a severe financial crunch, may be forced to trim its procurement operations. Unless the finance ministry releases a good part of the unpaid subsidy of Rs 58,000 crore or let Life Insurance Corporation raise Rs 40,000 crore to support FCI soon, the corporation will have exhausted the funds for buying foodgrains from farmers by December-end.

To the chagrin of FCI, the finance ministry, sources said, has rejected a food ministry proposal that the government be guarantor to the 10-year bonds proposed to be issued by LIC to bridge the FCI’s resource gap.

“The finance ministry has refused to provide guarantee to LIC bonds citing Fiscal Responsibility and Budget Management (FRBM) norms,” an official said. He added that an acute funds shortage could jeopardise the FCI’s grain procurement as well as distribution of the same under the public distribution system (PDS) from January onwards.

fci

At the end of last fiscal, thanks to the customary rolling over of subsidy payments to meet the FRBM goals over the last many years, the unpaid subsidy to FCI had touched Rs 58,650 crore. The food subsidy estimate for the current year is Rs 1.24 lakh crore, including Rs 96,000 crore to be routed through FCI.

While this estimate is largely adhered to and the funds have have been promptly released, the finance ministry, under pressure to keep fiscal discipline, could not pay FCI the huge arrears from past years. FCI has already availed of a short-term loan of Rs 30,000 crore after exhausting the option of cash credit limit (CCL) of Rs 54,495 crore from 67 public sector and scheduled banks.

The Reserve Bank of India had fixed the CCL for FCI for carrying out operations like procurement of rice and wheat from farmers and distributing these grains to states for the PDS. However, these loans are availed against the value of foodgrain stock held with the corporation.

For funds under CCL, FCI pays an annual interest of 10.13 % while for short-term loans it pays an interest of 9.5%. FCI’s ability to tap the CCL is often constrained, as its grain stocks, against which the credit is available, are often held by the state-run agencies in Punjab and Haryana.

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. At the start of October 2015, FCI had grain stocks of 45 million tonnes (mt). The volume of grain stocks was still higher than the buffer stocks norm of 30.7 mt required at the start of October. In June 2012, the stocks stood at a record 82 mt.

With the finance ministry’s outstanding dues to the FCI piling up, the corporation’s debt burden is rising relentlessly. FCI had paid Rs 8,244 crore as interest to banks in FY15, a year in which it raised Rs 91,504 crore via CCL and short-term loans.

Food ministry sources said the outstanding dues to FCI are expected to rise beyond Rs 73,000 crore in the current fiscal due to a mismatch between expenses incurred by FCI and annual allocation under the food subsidy. The Centre’s unpaid dues to the states under the decentralised procurement are expected to be around Rs 6,405 crore by March 2015.

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