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FCI to raise Rs 50,000 crore short-term loan from banks next month

The corporation has been relatively comfortable with the cash position over the last one year as the government promptly released the food subsidy amounts to it, after the practice of availing National Small Saving Fund (NSSF) loans for subsidy financing was stopped in FY22 Budget for the sake of transparency of government finances.

Sources told FE that against demand of around Rs 47,000 crore towards the expenses for April-June, 2022, FCI has been provided with only around Rs 33,000 crore so far under the food subsidy budget.
Sources told FE that against demand of around Rs 47,000 crore towards the expenses for April-June, 2022, FCI has been provided with only around Rs 33,000 crore so far under the food subsidy budget.

The Food Corporation of India (FCI) will raise Rs 50,000 crore as short-term loans from banks next month for financing its operations because of the inadequate release of food subsidy expenses from the Centre.

Sources told FE that against demand of around Rs 47,000 crore towards the expenses for April-June, 2022, FCI has been provided with only around Rs 33,000 crore so far under the food subsidy budget.

The corporation has been relatively comfortable with the cash position over the last one year as the government promptly released the food subsidy amounts to it, after the practice of availing National Small Saving Fund (NSSF) loans for subsidy financing was stopped in FY22 Budget for the sake of transparency of government finances.

Sources indicated that after availing the short-term loan in early July, FCI will deploy around Rs 24,000 crore towards repayment of short-term loans availed in the first two months of current fiscal. These loans were availed to finance FCI’s operations of procurement, transportation and distribution of foodgrains to states for public distribution system.

FCI is mandated to avail short-term loans which are of 90 days duration from scheduled banks to address cash flow mismatches because of slow release of subsidy. These short-term loans carry an interest rate in the range of 3.85-3.9% per annum.

The finance ministry has provided Rs 10,000 crore as wage and means advance to FCI this quarter which had to be adjusted against the release of food subsidy by March 31, 2023.

The central issue prices of Rs 3, Rs 2, Rs 1 for a kg of rice, wheat and coarse grains respectively, under the National Food Security Act (NFSA), have not been revised since 2013. On the other hand, FCI’s economic cost (MSP to farmers, storage, transportation and other costs) of rice and wheat for 2022-23 is 36.70 and25.88 per kg, respectively.

For 2022-23, central government has allocated Rs 2.06 trillion for food subsidy expenses out of which Rs 1.45 trillion or 71% is provided to FCI. However, following the extension of Pradhan Mantri Garib Kalyan Anna Yojana, an additional Rs 800,000 will be spent under food subsidy.

FCI procures and distributes more than 60 million tonne (MT) of wheat and rice annually. The corporation manages procurement, storage and transportation of rice and wheat to states for distribution, mainly for the NFSA and other welfare schemes.

Due to a huge mismatch between rising expenses because of open-ended procurement of rice and wheat under minimum support price (MSP) operations from farmers and cost of carrying excess stocks between 2016-17 to 2020-21, the government had provided it funds from loans taken from NSSF during 2016-17 to 2020-21 in lieu of food subsidy.

However, finance minister Nirmala Sitharaman in her Budget speech for 2021-22 had announced ending the practice of extra-budgetary borrowing from next fiscal by making provisions of Rs 3.35 trillion towards payment of NSSF loans.

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