Food Corporation of India forced to borrow more as subsidy arrears hit Rs 50,000 cr in FY14

Written by Sandip Das | New Delhi | Updated: Apr 4 2014, 07:16am hrs
Food subsidySpending on food subsidy for FY14 was slashed by around Rs 18,000 crore from the recently-estimated Rs 92,000 crore. Reuters
Spending on food subsidy for FY14 was slashed by around Rs 18,000 crore from the recently-estimated Rs 92,000 crore, as the finance ministry tenaciously clung to the fiscal deficit target of 4.6% of GDP, despite a significant shortfall in tax receipts.

As per tentative budgets approved by the Food Corporation of India (FCI) board, against the subsidy incurred by it of Rs 93,445 crore for the year, just Rs 75,500 crore was released by the ministry. That means inclusive of the arrears of Rs 31,886 crore from the previous year, payment of Rs 49,698 crore has been deferred.

FCI has estimated its subsidy requirement for the fiscal to be Rs 1.16 lakh crore and expects the government to give not more than R92,000 crore, given the extant norms. So, if past dues to FCI are not settled in the current fiscal, total dues will rise to an unsustainable Rs 74,000 crore by the end of this fiscal, sources from the corporation said.

Delayed release of subsidy amounts has been forcing FCI to seek bank credit for running its operations. FCI incurred expenses of over R7,400 crore towards interest payment in the last fiscal because of huge borrowings, an official said.

The FCIs cost of operations has been rising sharply mainly due to storage expenses and the annual rise in the minimum support price (MSP) offered to farmers over the last five years.

The MSP of paddy and wheat was increased by 54% and 35% respectively during 2008-9 and 2013-14.

At the start of March, 2014, the FCI had food grain stocks (mostly consisting of rice and wheat) close to 40 million tonnes, which is double requirements of buffer stocks and strategic reserves.

This comes at a time when FCI is required to take up bigger operations for the implementation of the Food Security Bill. The law, which aims to supply 62 million tonnes of rice, wheat and coarse cereals to about 84 crore people, is expected to cost around R1,25,000 crore annually. At present, FCI distributes subsidised grains to more than 40 crore under the Targeted Public Distribution System (TPDS).

The corporation depends on the annual cash credit limit of R54,495 crore from 62 public sector and scheduled banks for managing its operations. The cash credit limit is fixed by the finance ministry annually in consultation with the food ministry.

The government had allowed FCI to raise unsecured short-term loans up to R15,000 crore for meeting its cash flow requirements in February.

The cash credit facility available to FCI was inadequate to meet its working capital requirements during the last three years. Due to this, the corporation had to take short-term loans from time to time, food minister KV Thomas had told FE earlier.