Food subsidy bill to come down as FCI stocks decline

Written by Sandip Das | New Delhi | Updated: Aug 21 2014, 09:55am hrs
A sharp fall in Food Corporation of India (FCI)s grain stock over the last two years is expected to result in substantial savings to the government in food subsidy this fiscal.

According to the food ministry's estimate, the government's food subsidy bill will be reduced by R23,400 crore in the current fiscal due to a decline in wheat procurement and selling of excess wheat stock in the open market by FCI.

The stock with FCI on July 1, 2012, was 80.5 million tonne (mt), which has declined to 67.5 mt this year.

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The corporation sold 5.8 mt of wheat under Open Market Sale Scheme (OMSS) in the last fiscal and is aiming at selling 10 mt from its excess stock to bulk buyers in the current fiscal. Taking into account average food subsidy burden of R150 crore per lakh tonne for wheat and R200 crore per lakh tonne of rice, subsidy savings are estimated at R23,400 crore for the current fiscal, a food ministry official told FE.

Besides, the recent food ministry's directives to Madhya Pradesh, Chhattisgarh and Rajasthan against offering bonus to farmers along with the minimum support price (MSP) is expected to restrict the volume of grain procurement by FCI by around 2.8 mt annually. The food ministry is anticipating annual savings of R6,000 crore on account of lower procurement in these states.

The food ministry official said the government's move to restrict levy rice procurement to only 25% from the next procurement season commencing October 2014 is also expected to reduce rice purchase by 3-4 mt annually, thus saving around R6,000 crore on the food subsidy front.

However, due to unsettled dues of R50,000 crore from the previous fiscal from the finance ministry, FCI continues to borrow from banks for carrying out operations as annual food subsidy allocation is not sufficient to meet operational expenses.

If the finance ministry does not settle outstanding dues to the FCI, the total dues are expected to rise to R68,000 crore by the end of the current fiscal, an FCI official said.

In a letter to the finance ministry, the FCI has asked the government to clear R50,000 crore of dues in a phased manner.

Government officials admitted dues have been steadily rising over the last two years, which has forced the FCI to seek bank credit.

FCI incurred expenses of more than 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 MSP offered to farmers over the last five years. The finance ministrys allocation of food subsidy is not enough for FCI to meet its expenses.

In the current fiscal, the corporation, for public distribution of foodgrain, had raised a short-term loan of R20,000 crore twice for smooth procurement and distribution.

FCI at present distributes subsidised foodgrain to more than 40 crore poor families under the Targeted Public Distribution System.