Upfront release of subsidy to FCI cuts PDS cost
With the finance ministry releasing Rs 64,000 crore or 44% of total estimated food subsidy of Rs 1.47 trillion estimated for FY25 to the Food Corporation of India (FCI) upfront, the corporation would not have resort to the expensive route of seeking short terms loans or avail its cash credit limit to finance its activities in the current fiscal.
Officials said the FY25 budget outlay for FCI, which is part of the overall food subsidy budget of Rs 2.05 trillion for the year, would be enough to meet its expenditure.
Officials said that the finance ministry has been releasing expenses towards food subsidy timely in the last couple of fiscal years, which has ensured that corporations mostly don't rely on short-term loans and cash credit limits as being provisioned.
The FCI currently holds 44.42 million tonne (MT) — 32.80 MT of rice stocks and 11.62 MT of grain receivable from millers. The stock is against the buffer of 10.25 MT for October 1.
With the arrival of paddy for the new season (2024-25) is expected to commence from October 1, the government has to initiate steps to reduce the stock in the central pool through open market sale and allow exports of white rice.
In FY24, the expenses (revised estimate) on account of food subsidy was Rs 2.12 trillion, out of which FCI was allocated Rs 1.39 trillion.
Correspondingly the FCI’s economic cost for rice and wheat for 2024-25 is estimated to increase Rs 39.75/kg and Rs 27.74/kg, from Rs 39.31/kg and Rs 27.09/kg respectively in 2023-24.
To bridge cash-flow mismatch, there is a provision for FCI to avail short term loan with a tenure of 90 days upto Rs 75,000 crore at any given point of time. The annual rate of interest charged by designated banks ranges between 6.98% to 7.36% per annum.
Officials said out of total borrowing of FCI at Rs 63,028 crore by the end of July, FY25, a major chunk includes Rs 36,700 crore worth of bonds which are payable during 2028-30 in parts.
The corporation has been relatively comfortable in recent years with the cash position as the government promptly released food subsidy amounts, after the practice of taking National Small Saving Fund (NSSF) loans for subsidy financing was stopped in the FY22 Budget for the sake of fiscal transparency.
The FCI in collaboration with state agencies procures and distributes more than 55 million tonne (MT) of wheat and rice annually under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) also known as free ration scheme through 530,000 fair price shops across the country.
The government has extended PMGKAY where 813 million people are currently being provided 5 kg each of specified grains per month free of cost, by five years till 2028.
The FCI has commenced open market sale of rice to bulk buyers from its surplus stock at the subsidized rate of Rs 28/kg. Last fiscal, there was a lukewarm response to open market sale of rice at Rs 29/kg with FCI selling only around 0.1 MT of rice.