After a four-year gap, the Food Corporation of India (FCI) is exploring the option of raising about ₹25,000 crore through off-budget resources to bridge a widening gap between budgeted allocations and its sharply higher projected food subsidy expenditure in FY26. The proposed fund-raise, through government-guaranteed bonds, reflects mounting pressure on FCI’s finances as subsidy costs overshoot initial estimates.
Sources told FE that the practice of funding food subsidy shortfalls through loans from the National Small Savings Fund (NSSF) and bond issuances was formally discontinued in 2021. FCI last tapped the bond market in August 2021, raising ₹8,000 crore, just ahead of the new funding framework coming into force.
In her 2021-22 Budget speech, Finance Minister Nirmala Sitharaman had announced an end to extra-budgetary borrowings for food subsidy, after such liabilities swelled to nearly ₹6.7 lakh crore by end-FY21. In FY22, the Centre brought about ₹5 lakh crore—nearly 75%—of these liabilities onto its balance sheet, largely by taking over ₹4.27 lakh crore of NSSF loans raised by FCI to clear food subsidy arrears.
FCI’s fiscal position
Following this clean-up, FCI’s cash position remained relatively comfortable, aided by timely subsidy releases from the government. That situation, however, has changed in FY26, with expenditure pressures rising well beyond initial projections.
While discussions are ongoing, the final size and timing of the proposed bond issuance are yet to be firmed up. Officials cautioned that market appetite for large government-guaranteed bond issuances is limited, which could constrain the quantum of borrowing.
Historically, the government has permitted FCI to raise funds through sovereign-backed bonds to meet working capital needs. Between 2013 and 2021, the corporation issued bonds worth ₹36,700 crore, with maturities ranging from 10 to 15 years. These liabilities are due between 2028 and 2031.
Funding stress
Officials attributed the renewed funding stress largely to the rising economic cost of holding surplus rice and wheat stocks—well above buffer norms—and the continued supply of heavily subsidised grain from these inventories. As a result, FCI’s expenditure in FY26 is estimated to overshoot the budget estimate by ₹30,000–40,000 crore.
FCI, which accounts for over 70% of the government’s food subsidy outgo, has revised its projected FY26 expenditure to ₹1.72 lakh crore, up from the budgeted ₹1.43 lakh crore. However, the food ministry has so far been unable to secure approval for a higher allocation amid tight fiscal conditions.
The Centre is facing pressure on multiple fronts, including potential tax revenue shortfalls following income tax relief and broad-based GST rate cuts, alongside higher-than-expected subsidy outgo. Against this backdrop, the finance ministry has pushed back on certain expenditure components proposed by FCI.
In particular, it has argued that an additional subsidy requirement of around ₹20,000 crore in FY26—for supplying subsidised rice through open market sales and for the grain-based ethanol blending programme—should be delinked from the food subsidy budget. The ministry has noted that ethanol production from grains does not fall within the scope of food subsidy.
Between 2016-17 and 2020-21, a structural mismatch between open-ended procurement of rice and wheat at minimum support prices and the rising cost of carrying excess stocks had forced the government to rely on NSSF loans and bond issuances to fund FCI. Although that approach was later unwound, similar pressures appear to be resurfacing.
With the food subsidy budget projected to rise by about 11% in FY26, the overall subsidy burden under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) is expected to cross ₹2.25 lakh crore—the highest since the ₹2.72 lakh crore peak in FY23.
So far in FY26, the finance ministry has released ₹86,517 crore to FCI, covering about 60% of the corporation’s estimated expenditure at the start of the year. In addition, FCI has received a temporary ‘ways and means’ advance of ₹50,000 crore, which will eventually need to be adjusted against food subsidy allocations.
Borrowing pressure persists despite record open market sales of rice. FCI has already sold around 7 million tonne (MT) this fiscal and may sell up to 9 MT to bulk buyers in FY26. Yet stocks remain elevated. As of early December, central pool rice stocks stood at nearly 53 MT—over four times the buffer norm of 10.25 MT—with more than 20 MT still due from millers.
Each year, FCI supplies about 36–38 MT of rice and 18–20 MT of wheat under PMGKAY to nearly 810 million beneficiaries. Meanwhile, annual procurement at MSP has stayed in the range of 75–80 MT, resulting in a persistent build-up of stocks and renewed strain on the food subsidy framework.