The Food Corporation of India (FCI) will borrow a whopping Rs 1.36 trillion from the National Small Savings Fund (NSSF) to finance its burgeoning food subsidy bill in 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 Rs 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 Rs 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 of 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 Rs 1.51 trillion in BE to Rs 75,000 crore at the RE stage. NSSF loans of around Rs 1.1 trillion came to the rescue. As a result, the corporation spent around Rs 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 Rs 3.22 trillion. This will be after accounting for Rs 68,400 crore interest 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 Rs 2.5 trillion.
The number could have been lower had the government released the entire allocated Rs 1.51 trillion to the FCI as food subsidy in 2019-20. However, it released just Rs 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 off-budget measures. The bulk of this is through loans from the NSSF. In 2019-20, the FCI had to repay around Rs 46,400 crore to the NSSF for loans taken in previous years, which will rise to Rs 68,400 crore in 2020-21. In 2018-19, it repaid back a sum of Rs 27,000 crore to the NSSF.
FCI’s current financial position is largely 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 – Rs 3 a kg for rice, Rs 2 a kg for wheat and Rs 1 a kg for coarse grains.
Data shows that each Rs 1 (per kg) increase in issue price of grains could result in savings of food subsidy of over Rs 5,000 crore annually.
For 2018-19, while FCI’s issue price of grains to the states under the NFSA remains at Rs 3 per kg for rice and Rs 2 per kg for wheat, the economic cost of grains is Rs 33.1 (rice) and Rs 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 Rs 30 a kg. For wheat, it is Rs 24.45 a kg.