Centre tweaks FCI funding, helping it to go debt free

FCI has long been resorting to external borrowings to maintain food reserves, fund its purchases of grains from farmers and redistribute them to 800 million beneficiaries free of cost

The Union government has spruced up the finances of the Food Corporation of India (FCI), the Centre’s main grain-handling arm, helping it to run its massive operations without taking on debt for the first time and cut interest payments by a tenth, HT has learnt.

Depending on disposal of cereal stocks and various other costs, the FCI provides finance ministry with its financial requirement every week, based on which funds are released. (Reuters)

The FCI, responsible for ensuring food security of the world’s most populous nation, has long been resorting to external borrowings to maintain food reserves, fund its purchases of grains from millions of farmers and then redistribute them to 800 million beneficiaries free of cost.

In 2020-21, the Union government paid off the federal food agency’s ballooning debt of ₹3.39 lakh crore, but despite the closing of loans, it has had to dip into off-budget borrowings, which don’t show up as food subsidy in the budget and therefore masks the government’s fiscal deficit, experts say.

For instance, statement 25 of the expenditure profile of the Budget 2022-2023 shows two things. One, the FCI is provisioned to borrow ₹15,000 crore in the ongoing financial year. Two, for 2023-24, the FCI will again borrow ₹40,000 crore through extra commercial borrowings (ECB) along with another ₹1.05 lakh crore through “others”, which denote borrowings from banks and a usual source, the National Small Savings Fund.

After recent discussions between the FCI and the Union finance secretary, the Centre has started releasing food subsidy to the FCI weekly, ranging between ₹3,000-5,000 crore, which has helped smoothen the agency’s flow of funds, a person aware of the matter said. During 2023-24, the government’s total food security bill was budgeted at ₹2.12 lakh crore.

Depending on disposal of cereal stocks and various other costs, the FCI provides finance ministry with its financial requirement every week, based on which funds are released. The public-run behemoth has also been allowed to also utilize its long-term bonds worth ₹37,000 crore to meet its operational costs, which include building stockpiles of food, storage expenses and transportation.

The first boost to the FCI’s finances came in February when the Union government sharply increased its working capital for 2024-25 to ₹21,000 crore in equities from ₹10,000 crore to minimize borrowings and interest payouts.

Bonds and equities alone work out to ₹57,000 crore, the person cited above said, declining to be named. The new funding pattern has helped minimize interest payments of the FCI from ₹30,000 crore to ₹3,000 crore.

With the changes in the way the government funds the FCI, the state-run corporation will no longer need to take massive debts this financial year and this trend is being institutionalized, a second person aware of the matter said, also requesting anonymity.