Deep in the red: Debt-ridden Food Corporation of India faces a reckoning
A linchpin in the farm economy, the FCI supports two-thirds of Indians, and is sinking under debt year after year, stoking fears that the state-run behemoth could face its financial reckoning soon.india Updated: Aug 05, 2016 18:18 IST
The Food Corporation of India (FCI) -- a lifeline for nearly 800 million poor Indians who rely on its food handouts -- is sinking under debt year after year, stoking fears that the state-run behemoth could face its financial reckoning soon.
The government’s main grain-handling arm, the FCI fulfills a key mandate: it provides subsidised wheat and rice to 67% of the population through a countrywide network of fair price shops, as required under the National Food Security Act.
Despite budgetary allocations, under-funding and unpaid dues have prompted the FCI to borrow more and more each year to carry out its key operations. In 2013-14, it raised loans amounting to Rs 35,150 crore. In 2014-15, it borrowed Rs 59,415 crore, while in 2015-16, its loans stood at Rs 70,820.
The FCI is a linchpin in the farm economy, which supports two-thirds of Indians. It buys farm produce at government-guaranteed prices (known as minimum support prices), which act as a key incentive for farmers. It then sells the procured foodgrains at discounted rates to the poor. This difference is the food subsidy bill.
In 2016-17, against a subsidy bill of Rs 1,29,000 crore, the government has paid Rs 1,03,300 crore so far, which means it may have to borrow again if the full amount isn’t released during a final-settlement process known as “revised estimates and supplementary grants”. The corporation has been going to a consortium of commercial banks for loans.
“Due to short budget provision, the FCI has to raise its working capital through short-term loans. But this is becoming a trend. That’s worrying. It can’t be perennial,” an official said, who wished anonymity.
“This apart, mounting arrears are another concern,” he said. Unpaid dues by the government currently stand at Rs 61,000 crores, enough money to build 5000km of expressways.
In 2011, a financial crisis threatened to cripple the FCI’s operations. “The FCI had to twice stop payments to state governments, grain-purchasing agents and millers who buy wheat and rice from millions of farmers,” a former official said, requesting anonymity.
The government’s food subsidy bill accounts for over half of all subsidy payouts. Food handouts are critical to vulnerable section in a country where more than a third of children are malnourished.
“These debts raises the economic cost of grains and ultimately adds to the government’s overall fiscal burden. You are not only selling grains cheap but on borrowed money that come with interests,” the official said. “Economic cost” denotes charges of buying, stocking and distributing grains.