FCI being kept on a debt diet

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New Delhi | Updated: December 25, 2014 2:39:36 AM

Owed Rs 58,000 cr; could halt procurement

FCI was made to spend hugely to keep grain stocks much higher than buffer levels by the previous UPA government.FCI was made to spend hugely to keep grain stocks much higher than buffer levels by the previous UPA government.

The Food Corporation of India’s (FCI) procurement operations could come to a halt by February unless it is paid a good part of its outstanding dues of a record R58,000 crore soon.

For the Centre, which has admitted to a tax revenue buoyancy overestimate of R1 lakh crore, and could face a shortfall of R20,000 crore in disinvestment receipts, the demand from the FCI could not have come at a worse time.

Official sources told FE that for FCI, which is somehow managing the minimum support price (MSP) operations of wheat and rice at present thanks to the three short-term bank loans of R20,000 crore taken since the start of the current fiscal, the ability to sustain the operations is already waning. These loans carry an interest of 11.28%, which gets added to the government’s food subsidy burden.

The food ministry has requested the finance ministry for R1.47 lakh crore (including R92,000 crore budgeted for FCI’s MSP functions and overall food subsidy arrears from previous years) in the current fiscal, a tall order given the Centre’s strained fiscal situation.


The fall in global commodity prices including oil has come as a godsend for the finance ministry; nevertheless, it has a hard task at hand in meeting this year’s fiscal deficit target of 4.1% of GDP, given that the deficit in April-October stood at over 90% of the level projected for the full year and there is an acknowledged need to keep productive public spending robust.

FCI was made to spend hugely to keep grain stocks much higher than buffer levels by the previous UPA government and this had inflated the food subsidy bill in the last three years. Although the corporation has managed to reduce stocks by a quarter from record levels two years ago, its plan to offload excess grain stocks in the open market is hanging fire due to sufficient availability of wheat with private traders coupled with states’ inability to lift rice meant for the poor.

Meanwhile, in the next couple of months, rice procurement needs to pick up in eastern states while the wheat purchase operations for the rabi marketing season (2015-16) will commence from April 1.

The FCI’s cost of operations of procurement, storage and transportation of foodgrains has been steadily rising due to factors such big annual increases in the MSPs offered to farmers (the MSP hikes turned moderate from the 2012-13 kharif season) and its holding of excess grains stocks.

“The finance ministry’s allocation of food subsidy (Rs 1.15 lakh crore of which Rs 92,000 crore is to be disbursed to FCI) is not enough for the FCI to meet its day to day expenses,” a food ministry official said.

While open market sales of wheat was supposed to garner many thousand crores for the government, it has so far managed to sell only 1.5 million tonnes of wheat against the target of selling 10 million tonnes by end-March, 2015.

FCI had exhausted its cash credit limit of Rs 54,500 crore from designated banks before it resorted to short-term loans.

“FCI incurred expenses of more than Rs 7,400 crore towards interest payment in the last fiscal because of huge borrowings from banks,” the food ministry official said. The funds crunch comes at a time when FCI is required to augment procurement operations for the implementation of the food security Act, the implementation of which, incidentally, has been post deferred to next fiscal.

The law, which aims to supply around 60 million tonnes of rice, wheat and coarse cereals to about 84 crore families and will subsume the current schemes, is expected to cost around Rs 1,25,000 crore annually. FCI at present distributes subsidised foodgrains to more than 40 crore families under the Targeted Public Distribution System.

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