The decision to allow the corporation to raise unsecured short-term loan was taken by the board of directors of FCI. It would help bridge mismatch in cash flow, a food ministry official said.
FCI depends on the cash credit limit of R54,495 crore from 62 public sector and scheduled banks for its operations. Cash credit limit is annually fixed by the finance ministry in consultation with the food ministry.
FCIs authorised and paid-up capital is around R2,500 crore and its borrowing cannot exceed 10 times its capital and reserve funds. The FCI official said the banks charge penal interest above R54,000 crore of credit.
A food ministry official said while the government allocates funds annually under the food subsidy bill to FCI, the corporation also incurs losses because of holding on to huge stocks. The finance ministry had made a provision of R71,980 crore at the revised estimate stage for 2012-13 for reimbursement to FCI against the corporation's demand of R101,887 crore. For the meeting the gap between government's allocation towards the food subsidy and the actual cost incurred by the FCI, the government took a series of measures to improve cash flow for the corporation, which distributes subsidised grains to more than 40 crore population under the Targeted Public Distribution System (TPDS).
Earlier, the government guarantee for FCI's loan was enhanced by R10,000 crore during December 2012 February, 2013, which enabled it to avail higher cash credit limit from the banks. Last month, FCI borrowed R5,000 crore through issuance of government guaranteed bonds with a tenure of 10 15 years. Previously, the FCI had issued bonds worth R3,914 crore in 2005.
Cash credit facility available to FCI was inadequate to meet the working capital requirement during last three years. Due to inadequate cash credit limit, the corporation had to borrow funds from the banking sector by availing short-term loan from time to time, food minister KV Thomas said.
Finance minister P Chidambaram budgeted R90,000 crore as food subsidy for 2013-14, which includes R10,000 crore given for 'incremental cost' in case of implementation of food security legislation. With a carryover subsidy burden of R32,000 crore from previous years, the government's actual food subsidy bill next fiscal is likely to be in excess of R1,20,000 crore.