Difficult options: Violate fiscal target or allow dues to rise to over Rs 2 lakh crore and take Rs 70,000 crore loan for 3rd year.
The government is facing the spectre of a loan trap in order to undertake the food procurement, transportation and storage operations under the National Food Security Act uninterruptedly. On the one hand, it will likely have dues of an all-time-high Rs 2 lakh crore to Food Corporation of India (FCI) by the end of the current fiscal (assuming that it will defer, as in the past two years, close to one-third of the subsidy payments to the corporation to control the fiscal deficit); on the other, for the third year in a row, it will have to resort to expensive National Small Savings Fund (NSSF) loan of Rs 60,000-70,000 crore to ensure that FCI’s operations are unaffected.
As the gap between the subsidy amounts released to 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 NSSF of Rs 70,000 crore at a high rate of 8.8% per annum at its own cost. Although idea was to clear the arrears to FCI, that did not materialise and the Centre had to take another NSSF loan of Rs 65,000 crore in FY18 at 8.4% interest to not only meet the FCI’s expenses
but also to service the previous loan.
The outstanding in the loan account is currently Rs 1.21 lakh crore. So, unless the government pays the entire budgeted food subsidy amount for FY19 (to FCI) by March 2019 and provides an additional `26,000 crore on account of higher minimum support prices and servicing the second NSSF loan — unlikely options given the pledge to stick to the fiscal deficit target — it will have to take another loan for FCI in the current year. “Normal government expenditure is being substituted with loans instead of cash on fears that fiscal deficit will go for a toss if it is shown as the government borrowing,” an official said.
While the objective of arranging NSSF loans was to clear arrears of FCI with the government repaying interest and principal gradually, the last two years experience has shown that it is going in an altogether different direction — more NSSF loans being taken to repay earlier loans.
The budgeted food subsidy via FCI for the current fiscal is Rs 1.38 lakh crore (the total food subsidy is Rs 1.7 lakh crore). As for the government, however, the cost in relation to FCI operations would be higher by Rs 26,000 crore: Rs 8,000 crore additional expenses due to higher paddy MSP for kharif 2018 and about Rs 18,000 crore towards servicing the NSSF loans.
Separately, FCI itself will soon raise Rs 8,000 crore through 12-15 year bonds to fund its grain stock holding, which is around Rs 50,000 crore at any point in time. The new bond issue is part of its four-year Rs 32,000-crore bond issuance starting FY19 for raising long-term funds for stock maintenance.
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. The corporation procures almost 70 million tonnes of rice and wheat annually.
By Prabhudatta Mishra and Prasanta Sahu