Govt hikes FCI capital by 110% to Rs 21,000-cr; move to reduce borrowings, help contain food subsidy
By Sandip Das
The government has increased the authorised capital of the Food Corporation of India (FCI) by 110% to Rs 21,000 crore from Rs 10,000 crore. The move is in sync with the policy of minimising borrowings by the corporation, through which close to 70% of the food subsidy budget is routed.
While the food subsidy is essentially the difference between the economic costs of the National Food Security Act grains for the government and the issue (retail) prices to the beneficiary consumers, the loss-making operations are undertaken by FCI and other government agencies. These operations are funded out of Budget, but sometimes, delays in release of budgetary funds necessitate FCI to borrow from market/NSSF to continue the operations without any disruptions. The interest on these loans adds to the food subsidy expenditure.
However, in recent years, the FCI’s debt has been almost fully paid off, and its fresh borrowings are limited, in a bid to curb the food subsidy expenditure. Open market sales of grains procured at MSP by the FCI also helps reduce its losses, and contain the food subsidy, although the practice is of keeping high buffers.
According to a food ministry notification on Friday, the move would infuse additional equity capital to fund the foodgrains stocks held by FCI, which is entirely owned by the government. The additional capital infusion will reduce the borrowings of FCI, save interest cost and reduce food subsidy in consequence, according to an official note.
As per the revised estimates for 2023-24, out of the total allocation of Rs 2.11 trillion under the food subsidy expenses, Rs 1.39 trillion is routed through FCI.
An official told FE that the move to raise authorized capital is likely to help the FCI reduce its borrowings from banks and other institutions, leading to a saving of around Rs 750 crore annually.
In 2019, the government had increased the authorized capital of FCI in 2019 from Rs 3,500 crore to Rs 10,000 crore.
Officials said out of total borrowing of FCI at Rs 54,749 crore by the end of September, FY24, a major chunk includes Rs 36,700 crore worth of bonds which are payable during 2028-30 in parts.
The corporation has been relatively comfortable in recent years with the cash position as the government promptly released food subsidy amounts, after the practice of taking National Small Saving Fund (NSSF) loans for subsidy financing was stopped in the FY22 Budget for the sake of fiscal transparency.
Under the sector 27 of the food corporations act, 1964, FCI could raise bonds to finance its activities provided that the amount borrowed does not exceed ten times the paid-up capital.
Since the last two fiscal years, the MSPs of paddy and wheat witnessed an increase of 5-7% annually.
Correspondingly the FCI’s economic cost for rice and wheat for 2023-24 is projected to increase Rs 39.18/kg and Rs 27.03/kg, from Rs 35.62/kg and Rs 24.67/kg respectively in 2021-22.
Under the the Pradhan Mantri Garib Kalyana Anna Yojana (PMGKAY), 5 kg of rice or wheat are provided free of cost monthly to each of the 801 million beneficiaries. The government has extended PMGKAY for the next five which is likely to cost the exchequer close to Rs 12 trillion under the food subsidy budget.
The FCI in collaboration with state agencies procures around 70 – 80 million tonne (MT) of rice and wheat annually from the farmers while sits distributes about 56 MT of wheat and rice annually under PMGKAY through 530,000 fair price shops across the country. Currently, the scheme is being implemented across all 36 states and Union Territories.
FCI was constituted to implement the government’s food policy and its primary aim was to ensure minimum support price to farmers, maintain buffer stock of foodgrains and distribution of foodgrains under the National Food Security Act and other state-run welfare schemes.
This article has been republished from the Financial Express.