The budgeted food subsidy through FCI for 2018-19 was Rs 1.4 lakh crore (of the total food subsidy of Rs 1.7 lakh crore), of which, the Centre has paid about Rs 80,000 crore from the Budget.
Prodded by the Centre, the Food Corporation of India (FCI) has taken a fresh loan of Rs 60,000 crore from the National Small Savings Fund (NSSF) just before the fiscal year came to an end. What necessitated the loan was the Centre’s inability to foot the budgeted food subsidy bill in its entirety, given a big revenue shortfall (the tax revenue fell short of the revised Budget estimate by a whopping Rs 1 lakh crore).
Repayment of the loan is the Centre’s obligation.
With the latest decision, the government has resorted to the NSSF loan for the third year in a row to ensure that FCI’s operations are unaffected owing to its funds constraints. The Centre’s dues to the FCI has now touched an all-time high of Rs 1.95 lakh crore, and unless it finds budgetary resources soon to salvage the situation, it could be looking at a debt trap.
The FCI had taken a fresh loan of Rs 65,000 crore in FY18 from the NSSF not only to meet its expenses but also to repay the principal component of Rs 25,000 crore of an earlier loan. The NSSF route was used by the Centre to reduce the immediate fiscal burden on account of the mounting food subsidy? if these monies were provided from the Budget, the fiscal slippage (as percentage of the GDP) last year would have been higher than the reported 3.53% of the GDP.
The shortfall in the Centre’s tax receipts could be about Rs 1 lakh crore in 2018-19 (Rs 35,000 crore in direct taxes and the remaining in indirect taxes, mostly GST). The gap in tax revenues has been partly bridged by around Rs 62,000-crore savings from Budget allocations to various ministries.
The savings due to FCI loan, coupled with the other expenditure cuts, may have reduced the Budget expenditure by about Rs 1.2 lakh crore or about 5% from the Rs 24.57 lakh crore budgeted (RE).
With the latest loan, the outstanding debt of FCI (from the NSSF) is estimated to have touched Rs 1.81 lakh crore. The budgeted food subsidy through FCI for 2018-19 was Rs 1.4 lakh crore (of the total food subsidy of Rs 1.7 lakh crore), of which, the Centre has paid about Rs 80,000 crore from the Budget.
As the gap between the subsidy amounts released to the FCI and its actual operational expenses widened over the years, it used to be bridged with the agency taking short-term (90 days) loans and cash credit to meet its expenses. In FY17, the government chose to end this ad hoc mechanism by arranging a five-year loan from the NSSF of Rs 70,000 crore at a high rate of 8.8% per annum at its own cost. Although the idea was to clear the arrears to the FCI, that did not materialise and the Centre had to take another NSSF loan of Rs 65,000 crore in FY18 at an 8.4% interest to not only meet FCI’s expenses but also to service the previous loan.
Such arrangements mean normal government expenditure was being substituted with loans in the accounts of PSUs, instead of cash, because of fears of fiscal slippage.
The corporation implements the Centre’s food security programme by procuring mostly wheat and rice at minimum support prices, and is involved till the distribution stage.