Borrowings by FCI will rise 24% to ~1.36 trillion

I FOOD SUBSIDY

The Food Corporation of India (FCI) will borrow a whopping ~1.36 trillion from the National Small Savings Fund (NSSF) to finance its burgeoning food subsidy bill i n 2020 -21, Budget documents showed. This is the highest in the past five years and almost 24 per cent more than last year.

This, perhaps, explains the so-called ‘under-provisioning’ of food subsidy in the 2020-21 Union Budget for FCI. This is because together with the budgetary allocation of ~77,982 crore, the total funds available to it to procure grains from farmers and distribute it at cheap rates to ration card holders comes to around ~2.15 trillion.

This is based on the assumption that during the course of 2020-21, the Centre releases the entire budgeted amount. If there is any reduction in this amount, it would force the corporation to borrow more from the NSSF.

In the current financial year (2019-20), Budget documents show that though the budgetary allocation for FCI was lowered from ~1.51 trillion in BE to ~75,000 crore at the RE stage. NSSF loans of around ~1.1 trillion came to the rescue. As a result, the corporation spent around ~1.85 trillion as food subsidy. The subsidy amount does not include the amount spent by FCI on decentralised procurement of foodgrains under the National Food Security Act.

The fallout of relentless drawing of loans from the NSSF to bridge the gap in budgetary allocation towards food subsidy means higher outstandings.

By the end of 2020-21, the total outstanding balance with the NSSF from the FCI will be close to ~3.22 trillion. This will be after accounting for ~68,400 crore repayment from the FCI for loans taken in the previous year. By March 31, 2020, this outstanding amount with the NSSF is expected to be almost ~2.5 trillion.

The number could have been lower had the government released the entire allocated ~1.51 trillion to the FCI as food subsidy in 2019-20.

However, it released just ~75,000 crore as the revised estimates show.

The corporation has been facing huge financial arrears as much of its food subsidy since 2016-17 is funded through offBudget measures. The bulk of this is through loans from the NSSF. In 201920, the FCI had to repay around ~46,400 crore to the NSSF for loans taken in previous years, which will rise to ~68,400 crore in 2020 -21. In 2018-19, it repaid back a sum of ~27,000 crore to the NSSF.

FCI’S current financial position is l argely the result of its grain procurement far exceeding its distribution through ration shops in the last few years.

It is also because of a cap on the price at which they are sold at – ~3 a kg for rice, ~2 a kg for wheat and ~1 a kg for coarse grains.

Data shows that each ~1 (per kg) increase in issue price of grains could result in savings of food subsidy of over ~5,000 crore annually.

For 2018-19, while FCI’S issue price of grains to the states under the NFSA remains at ~3 per kg for rice and ~2 per kg for wheat, the economic cost of grains is ~33.1 (rice) and ~24.45 (wheat) per kg, respectively.

This means that for every kg of rice sold through the over 500,000 ration shops across the country, the government incurs a subsidy of ~30 a kg.

The number could have been lower had the govt released the entire allocated ~1.51 trillion to the FCI as food subsidy in 2019-20