With the increase in authorised capital, additional equity capital can be infused in FCI through Union Budget, to fund the foodgrains stock, perpetually held by FCI.
To reduce the borrowings of the Food Corporation of India, the Narendra Modi led government has approved an increase in the authorised capital from Rs 3,500 crore to Rs 10,000 crore. With the increase in authorised capital, additional equity capital can be infused in FCI through Union Budget, to fund the foodgrains stock, perpetually held by FCI. “This will reduce the borrowings of FCI, save interest cost of FCI and reduce food subsidy in consequence,” according to the Cabinet Committee on Economic Affairs (CCEA). The government’s move is aimed at regulating the debt of FCI after which it can buy more food grains from the farmers.
The debt of FCI as of March 2014 was Rs.84,446 crore, which shot up to Rs 2,53,162 crore by the end of March 2019, according to Rajya Sabha. “The increase in debt of FCI is mainly due to increase in arrears subsidy due from Rs 45,633 crore in March 2014 to Rs 1,90,922 crore in March 2019 and increase in year-end stock held by FCI from Rs 51,487 crore in March 2014 to Rs 82,352 crore in March 2019,” Danve Raosaheb Dadarao, MoS, Ministry of Consumer Affairs, Food and Public Distribution, said in a reply to a question in Lok Sabha last week.
Meanwhile, FCI only implements the food security programme of the Government of India and does not transact any commercial operations. In these operations, FCI procures foodgrain at Minimum Support Price (MSP) and sells at a Central Issue Price (CIP) both of which are fixed by GoI. CIP is usually much lower than MSP.
FCI receives revenue from the sale of food grain to States/UTs at CIP and the difference amount is received from the government as food subsidy. However, since the above does not cover the cost of procurement etc, the FCI meets its debt obligations through Cash Credit Limit (CCL), Ways & Means Advances (WMA), Short Term Loan (STL), National Small Saving Fund (NSSF) Loan & bonds.