Food subsidy release delayed: FCI resorted to large short-term loans

The Food Corporation of India (FCI) has again started taking large amounts as short-term loans and wages and has started taking advances from banks for financing its activities. The corporation has been relatively comfortable with its cash position for the past one year as the government immediately announced the amount of food subsidy after the NSSF stopped the practice of financing subsidies in the FY22 budget in the interest of transparency of government finances.

The FCI is again resorting to short-term loans as financial constraints have slowed down the pace of subsidies to the FCI.

Sources told FE that FCI has so far received about Rs 25,000 crore as against the demand of about Rs 85,000 crore for expenditure for April-May, 2022. To fill the gap, it has taken out short-term loans of about Rs 25,000 crore, sources said. Most of the wheat is collected in these two months.

The finance ministry has paid Rs 10,000 crore as wages and advance payments to the FCI, the rest being financed through short-term loans.

The FCI is required to obtain 90-day short-term loans from designated banks to deal with cash flow discrepancies. The interest rate on this short term loan is between 3.85-3.9% per annum.

Wages and payments are disclosed within one year in advance and are payable out of the subsidy allocation for the year to the end of the current financial year.

Official sources said the government is expected to provide adequate funding for the FCI in the coming months, through which more than 70% of the government’s food subsidy budget is routed.

Due to a huge discrepancy between the open purchase of rice and wheat under the Minimum Support Price (MSP) operation from farmers between 2016-17 and 2020-21 and the rising costs due to excess storage costs, the government funded it in 2016-17 instead of food subsidies. From loans taken from the National Micro Savings Fund (NSSF) from 2020-21.

However, Finance Minister Nirmala Sitharaman in her 2021-22 budget speech announced an end to the practice of extra-budgetary loans from the next financial year by allocating Rs 3.35 trillion for repayment of NSSF loans.

Under the National Food Security Act (NFSA), the central issue price of Rs. On the other hand, FCI’s economic cost (MSP to farmers, storage, transportation and other costs) for rice and wheat for 2022-23 is Rs 36.70 and Rs 25.88 per kg respectively.

FCI collects and distributes 60 million tons (MT) of wheat and rice annually. The corporation manages the collection, storage and transportation of rice and wheat to the states, mainly for distribution to the NFSA and other welfare projects.

For 2022-23, the central government has allocated Rs 2.06 trillion for food subsidy expenditure of which Rs 1.45 trillion or 71% has been paid to FCI. However, after the expansion of the Prime Minister’s Poor Welfare Anna Yojana, an additional Rs 0.8 trillion will be spent on food subsidies.

At present, FCI bonds rely on its working capital debt through advance and short-term loans.

Under the NFSA, more than 800 million people receive a high subsidy of 5-kg of food grains per capita per month. This includes about 25 million Antyodaya Anna Yojana families, the poorest of the poor. They are entitled to receive 35 kg per family per month at subsidized rates.

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