FCI breaks from tradition on food subsidy, avoids loans from banks

By: | Published: October 6, 2017 6:02 AM

With the Centre allocating more than 90% of food subsidy entitlement for the current fiscal to Food Corporation of India (FCI) well in advance, the corporation, in a break from convention, has not sought short-term loans (STL) from banks in the current fiscal so far for carrying out its operations of procurement and transportation of foodgrain.

food subsidy, bank loan problem, issues in taking short term loan fci, Food Corporation of India“The remaining portion of the food subsidy allocation to FCI is likely to be released shortly,” a food ministry official said.

With the Centre allocating more than 90% of food subsidy entitlement for the current fiscal to Food Corporation of India (FCI) well in advance, the corporation, in a break from convention, has not sought short-term loans (STL) from banks in the current fiscal so far for carrying out its operations of procurement and transportation of foodgrain.

Sources told FE that the finance ministry has already allocated Rs 98,300 crore to FCI till last month against the budget estimate of Rs 1.07 lakh crore for FY18. “The remaining portion of the food subsidy allocation to FCI is likely to be released shortly,” a food ministry official said.

This has ensured that FCI, like last year when the entire budgeted food subsidy allocation for previous fiscal was allocated by November 2016 for the first time, has not sought short-term loan in order to bridge the gap between its operational costs and food subsidy allocation. Till FY15, the FCI has been availing STL (around 90 days’ duration) to ensure smooth procurement operations because of delayed and inadequate release of food subsidy expenses.

Sources said the government would have to approve additional allocation to FCI for expenses towards procurement of rice for kharif 2017-18 season and also to pay back loan (against FCI’s outstanding dues) of Rs 70,000 crore taken from the National Small Savings Fund (NSSF) under a five-year special arrangement in the last fiscal. The finance ministry had arranged for NSSF loans in February 2016 because of rising outstanding dues to FCI.

“In the current fiscal, FCI needs an additional Rs 9,000 crore for meeting procurement and transportation cost besides Rs 14,000 crore would have to be paid as annual installment for NSSF loan availed for five years,” an official said. The FCI, in collaboration with state government agencies, is aiming for a record rice procurement of 37.5 million tonne (MT) for the 2017-18 season.

The food subsidy budget for FY18 is Rs 1.45 lakh crore, of which Rs 1.07 lakh crore is to be routed through FCI to the intended beneficiaries. The corporation procures 55-60 MT of rice and wheat annually. FCI’s costs of procurement, storage and transportation have been rising steadily over the years, driven by the annual rise in the minimum support price and the excess grain stocks held by the corporation.

Because of short-term loans availed in the recent years, FCI has been paying interest on the loan. Such expenses incurred by FCI eventually inflate the government’s food subsidy bill. The FCI incurs a subsidy of Rs 22.08 per kg for wheat and Rs 29.64 per kg for rice.

Meanwhile, FCI’s annual cash credit limit (CCL) of Rs 54,495 crore sanctioned by a consortium of 67 banks has been reduced to `9,000 crore following the NSSF loan. Thus, seeking a fresh short-term loan is the only option for FCI in case of funds crunch.

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