To meet cash flow mismatches and provide temporary working capital, the Food Corporation of India (FCI) will raise short-term loans of Rs 50,000 crore from scheduled banks for a three-month tenure, with a green shoe option to mop up an additional Rs 25,000 crore.
According to a tender floated by the FCI, these loans will be unsecured, and offers will remain valid up to August 31, with loan disbursals made in tranches according to FCI’s operational requirements. “The rising cost of holding hugely surplus foodgrains continues to boost food subsidy expenditure while short-term loans are used to bridge the gap between the periodic allocation under food subsidy and rising costs,” an official told FE.
The FCI’s economic cost (including MSP, storage, transportation and carrying cost) for rice and wheat for 2026-27 is estimated to increase to Rs 43.91/kg and Rs 31.45/kg, from Rs 42.11/kg and Rs 29.68/kg, respectively, in 2025-26.
On May 14, the FCI’s grain stock was 80.91 million tonne (MT) — 39.2 MT of rice and 41.7 MT of wheat. The stocks are against the buffer of 21.04 MT for April 1. This grain stock excludes about 30 MT of rice receivable from millers. Annually the corporation supplies around 36 – 38 MT of rice and around 18-20 MT of wheat under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) or free ration scheme.
In addition wheat procurement in the current season (2026-27) will continue till June, adding to grain stocks.
Under a provision, the corporation, which is primarily responsible for the storage and procurement of rice and wheat, can avail a short-term loan with a tenure of 90 days up to Rs 75,000 crore at any given point in time. The annual rate of interest charged by designated banks ranges between 5.55% to 7.4% per annum. By the end of FY26, the corporation had an outstanding short-term loan of Rs 22,360 crore.
To bridge the gap between actual expenditure and the food subsidy allocated by the finance ministry, there are provisions for a cash credit limit of Rs 6,000 crore, ways and means advance of Rs 50,000 crore (to be paid back during financial years) and the issuance of bonds (FCI has issued Rs 36,700 crore worth so far, payable during 2028-2021).
The FCI, which accounts for over 70% of the government’s food subsidy outgo, has revised its projected FY27 expenditure to Rs 1.87 lakh crore, up from the revised estimate of Rs 1.53 lakh crore (95% of the total subsidy estimate of Rs 1.61 lakh crore). The finance ministry has released Rs 14,532 crore to FCI and ways and means advance in FY27 so far.
Rising cost of holding huge stockpiles of rice and wheat and increase in MSP is likely to inflate the government’s food subsidy expenses by atleast Rs 20,000 crore from the budget estimate of Rs 2.27 lakh crore for FY27,
The food ministry has stated that a periodic annual increase in MSP of rice and wheat in the range of 3% to 7% and open-ended procurement of rice and wheat provided to farmers have led to surplus grain stocks.
The practice of funding food subsidy shortfalls through loans from the National Small Savings Fund (NSSF) and bond issuances was formally discontinued in 2021.