Due to non-settlement of dues, to the tune of more than Rs 22,000 crore by the ministry of rural development and the ministry of human resources development, state-owned foodgrain procurement agency, Food Corporation of India (FCI), is being forced to borrow money at a higher interest.

This also has a significant impact on the food subsidy bill of the government, which has risen from Rs 24,858 crore during 2006-07, to Rs 31,817 crore during 2007-08. This is expected to rise to Rs 46000 crore during 2008-09.

The ministry of rural development and the ministry of human resources development owe Rs 22,551 crore till end of June 2008 to FCI, as payment for grains supplied to the two development programmes? Sampoorna Grameen Rozgar Yojana (SGRY) and Mid Day Meal (MDM) scheme. Out of these, the major chunk of Rs 20,0094 crore is pending with the rural development ministry.

FCI supplies grain for the implementation of SGRY (now merged with the National Rural Employment Guarantee Act) under the rural development ministry and the MDM scheme, implemented by the HRD ministry. While FCI is paid in advance, for supplies of grain to be distributed through the public distribution system and to the armed forces, contributions to both the ministries? flagship schemes are made on credit.

The delay in the settlement of these bills is pressurising FCI?s cash credit limit. The agency operates through a cash credit limit of Rs 35,000 crore, provided by a consortium of 44 banks headed by State Bank of India.

There have been a series of meetings between officials from finance, rural development, food, human resources development ministries and FCI, to reconcile the accounts. In the last meeting, held on June 20, 2008, it was decided that the rural development ministry would clear one third of outstanding dues soon. ?No clear instructions have been given so far,? a FCI official told FE.

However Alok Sinha, FCI chairman & managing director, said, ?Whether we get it today or 10 days later, it makes no difference, as long as the government?s anti-poverty schemes are implemented. Instead of giving the money to ministries, the government is giving the money through food subsidy?.

FCI?s authorised and paid-up capital is around Rs 2,500 crore and its borrowing cannot exceed its capital and reserve fund by ten times. Sinha had earlier said that the supporting banks charge penal interest above Rs 35,000 crore and if FCI overdraws, then the interest outgo shoots up. ?As our debts go up, our expenditure goes up,? Sinha had said.

In 2006-07, the finance ministry had settled a major chunk of FCI?s dues, pending from the rural development ministry and other departments, by issuing bonds worth Rs 16,200 crore. However, since then, outstanding bills have been rising again.

This is significant as FCI, along with state procuring agencies, have lifted close to 23 million tonne of wheat, against the target of 15 million tonne. This procurement is more than double of what government agencies could procure last year.

FCI has hiked the minimum support price of wheat to Rs. 1000 per quintal up from Rs 850 per quintal last year.