The finance ministry has agreed to allocate an additional Rs 7,000 crore to the Food Corporation of India (FCI) for meeting its grain management expenses in the current fiscal year. This will take the total budgeted expenditure on food subsidy in the year to Rs 2.1 lakh crore, according to official sources.
The additional outlay is against FCI’s demand for Rs 20,000 crore to meet its assorted expenses.
The sources added that an understanding has also been reached between the finance ministry and the department of food and public distribution to keep food subsidy outlay for next financial year (2026-27) around Rs 2.17 lakh crore. The year-on-year increase in allocation is expected to help the FCI to service the loans it might have to take now, to bridge the shortfall in the current year.
The Centre is facing some fiscal constraint due to the shortfall in tax revenues from the budgeted levels on account of income tax relief and sweeping GST cuts, and higher-than-expected subsidy expenditure among other things. However, Finance Minister Nirmala Sitharaman has made it clear that the fiscal deficit target of 4.4% of the gross domestic product for FY26 will be met.
In the FY26 Budget, the government had projected Rs 2.03 lakh crore (Budget Estumate) for food subsidy, which is primarily employed to run the supply of free food grains to 810 million people under the National Food Security Act.
The FCI is likely to seek loans from financial institutions to fund its activities in the last quarter of current fiscal. One option is to dip into the National Small Savings Fund.
The lower allocation to FCI, according to sources, is expected to result in total shortfall of Rs 36,000 crore for the corporation. The finance ministry allocates 95% of the budgeted expenses before March 31 and rest is provided after audited accounts are presented to Parliament by August.
Recently, FCI, through which over 70% subsidies are routed, has revised upward its projected expenditure from Rs 1.43 lakh crore (BE) to Rs 1.72 lakh crore for 2025-26 mainly because of surplus rice stocks which far exceeds the buffer.
The finance ministry was of the opinion that projected additional subsidy expenses of around Rs 20,000 crore in 2025-26 for supplying subsidised rice sold through open market sale, and for grain-based ethanol blending programme should be de-linked from the food subsidy expenses. It noted that manufacturing of ethanol from grains is not covered under the NFSA.
Such expenses could be reduced by measures like reducing the grain stocks, raising the open market price, and using less subsidised grain for bio-fuel requirements, the ministry feels.
Economic cost of NFSA grain management for the FCI has been rising relentlessly due to stocks much higher than buffer levels, and lack of any increase in issue prices. Against the economic cost of rice projected at Rs 41.73/kg for FY26, FCI currently is supplying rice at Rs 23.2/kg to grain based ethanol manufacturers and Rs 28/kg for open market sale scheme.
Its allocation of rice for the non-NFSA activities is as high as 10.6 million tonne for FY26.
For the last many years, annually the FCI supplies around 36-38 MT of rice and 18-20 MT of wheat under the free ration scheme or Pradhan Mantri Garib Kalyan Anna Yojana to around 810 million people. The MSP procurement from the farmers has been in the range of 75 to 80 MT in the last many years leading to piling up of stocks.
At the beginning of the month, the government’s central-pool rice stock was over 44 MT, over 3 times the buffer of 10.25 MT for October 1. The current stock with FCI includes about 10 MT of grain yet to be received from millers.
The food ministry has stated that a periodic annual increase in minimum support price (MSP) of rice and wheat in the range of 3% to 7% and open ended procurement of rice and wheat provided to farmers have led to surplus grain stocks.