In what amounts to accepting that the central loan for foodgrain procurement was misused, the Parkash Singh Badal government has decided to borrow Rs 31,000 crore from the banks and repay in 20 years to settle the muddle over the mismatch in stock.
A top government source said that after the state cabinet had approved the measure, the food department under minister Adaish Partap Singh Kairon had sought mandatory consent from the Union government to float Rs 31,000-crore bonds for market borrowing. The decision to convert Rs 31,000 crore into a loan flies in the face of what the Badal government had claimed — that it’s the Centre that has to reimburse Punjab Rs 26,000 crore.
The alleged misuse of money came to light in April after the Reserve Bank of India (RBI) asked banks to classify Rs 12,000 crore given to the state for buying foodgrains as bad loan. The Akali-BJP government has since been engaging with the Centre to settle the matter. Prime Minister Narendra Modi had formed a committee of the Punjab and central officers to break the deadlock.
In July, the Punjab government deposited Rs 926 crore in the cash credit limit (CCL) account to come clean on the funds. Claiming “no wrongdoing” in using the procurement money, it suggested a huge gap between the cost of buying foodgrains and reimbursement by the central agencies.
The Centre and the RBI sanction the CCL as working capital, funded by a consortium of banks, to buy foodgrain. The value of stock with the state agencies should match the amount the Centre releases. But Punjab is unable to account for the payments in previous years.
It is after the Centre refused to sanction the CCL for paddy procurement until Punjab settles the outstanding “legacy food credit amount” by converting it into a clean term loan that the state agreed to repay Rs 31,000 crore. The state will repay the banks Rs 3,250 crore every year in two parts.
About a week ago, the government wrote to Centre for permission for floating the bonds. Recently, the cabinet approved the recommendations of the sub-committee comprising food minister Kairon and finance minister Parminder Singh Dhindsa, to settle what Punjab government says is “legacy food credit account”.
Last month, the Kairon-Dhindsa panel met the State Bank of India officials and the bank agreed to reduce the rate of interest from 9.26 to 8.25% on the loan that Punjab forced to take. A finance department note prepared for the cabinet says the state is “facing difficulty in obtaining the CCL under the food procurement operations”.
The note reads: “The Union government has asked the state government to keep budget for covering the gap in the receipt and the actual expenditure of the procurement agencies.” The government has set aside Rs 1,100 crore for this.
Besides, the Centre has ring-fenced every procurement season account to avoid any dispute over loan settlement. The government claims that returning this amount is part of settling the 20-year-long CCL dispute.