Govt raises cash-credit limit for FCI

Paves way for easier access of funds from banks

The government has finally raised the cash-credit limit of Food Corporation of India (FCI), the country’s premier grain procurement agency, by Rs 10,000 to Rs 44,000 crore. This would help the Corporation access funds more easily from banks.

The earlier limit of Rs 34,000 crore was inadequate as grain procurement touched record levels. This also led to delay in the payment of state-mandated minimum support price (MSP) to farmers in several places. The decision came along with speedier allocation of food subsidy.

The food ministry has long been pressing the finance ministry to raise the FCI’s cash-credit limit to help it access funds easily from banks.

“At present, we are not under any financial stress,” said chairman Siraj Hussain, indicating the raised cash-credit limit and release of pending food subsidy had helped improve its position.

A consortium of 44 banks, led by the State Bank of India, provided the cash-credit limit. The Corporation’s authorised and paid-up capital is Rs 2,500 crore. It was not allowed to borrow more than 10 times its capital and reserve fund.

Officials said banks charge penalty above Rs 35,000 crore of credit and if FCI overdraws, then interest outgo shoots up. FCI’s fund crunch increased in recent years as the government’s annual procurement of grains rose manifold, which correspondingly pushed up the storage, warehouse and handling charges.

As on January 1, the government had 56 million tonnes of grain in its warehouses, much above the buffer and strategic requirement of 25 million tonnes. In the 2011-2012 Budget, the food subsidy has been estimated to be Rs 60,085 crore.

The fund requirement of FCI and state procuring agencies also shot up due to factors such as announcement of bonus incentive of Rs 50 per quintal for wheat, raising the MSP of paddy by Rs 80 per quintal and additional foodgrain allocations for above poverty line and below poverty line families, apart from record procurement.