Finance Ministry Releases Rs 25,000 Crore to FCI as Food Subsidy

The Food Corporation of India (FCI) has repaid the short-term loan (STL) of around Rs 19,000 crore obtained from the banks and recently finance ministry has released more than Rs 25,000 crore towards food subsidy expenses.

In order to address cash flow inconsistencies by the finance ministry regarding the inadequate release of food subsidies, the FCI makes use of STLs from scheduled banks with a 90-day duration.

According to sources, the ministry has so far allocated more than Rs 86,000 crore under the food subsidy budget, compared to expenses of almost Rs 93,000 crore incurred by the FCI in the first two-quarters of the current fiscal. Before the conclusion of the fiscal year, the ministry provided Rs 10,000 crore as a wage which is adjusted against the food subsidy budget.

Finance Minister Nirmala Sitharaman announced in her Budget speech for 2021–22 that the practice of extra-budgetary borrowing would end as of the coming financial year by making provisions of Rs 3.35 trillion to pay off NSSF loans.  However, certain delays in the distribution of the subsidies forced it to turn to STL again.

The Center has budgeted Rs. 2.06 trillion for food subsidy expenses for 2022–23, of which Rs. 1.45 trillion, or 71%, will be allocated to FCI. The remaining food subsidies are sent directly to the states that follow a decentralized method of procurement.

However, Pradhan Mantri Garib Kalyan Anna Yojana has been extended to September 30, and an additional '80,000 crore (Rs 56,000 crore through FCI) would be spent from the budget for food subsidies.

Since the government promptly released food subsidy amounts after the practice of taking out National Small Savings Fund (NSSF) loans for subsidy financing was discontinued in the FY22 Budget for the sake of transparency, the corporation has been relatively comfortable with its cash position over the past year.

Under the National Food Security Act (NFSA) prices of Rs 3, Rs 2, and Rs 1 for a kg of rice, wheat, and coarse grains, respectively, have not been changed since 2013. Conversely, according to Budget Estimates, FCI's economic cost for rice and wheat for 2022–23 is Rs. 36.70 and Rs. 25.88 per kg, respectively (minimum support price to farmers, storage, transportation, and other costs).

Each year, the FCI purchases and distributes more than 70–80 million tonnes of rice and wheat. The corporation handles the procurement, storage, and delivery of wheat and rice to states for distribution, mostly for the NFSA and other welfare schemes.

The government provided FCI funds from loans taken from the NSSF from 2016–17 to 2020–21 in place of food subsidies due to a significant mismatch between rising costs caused by open-ended procurement of rice and wheat from farmers under minimum support price operations and the cost of carrying excess stocks.