Clean slate: Govt clears FCI's liabilities to National Small Savings Fund

The story has been updated 
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The Union government has cleared the unsecured debt Food Corporation of India (FCI) owes the National Small Savings Fund (NSSF), ending a process that began in 2017.

The government made the cash infusion before the financial year 2020-21 ended, letting FCI begin FY22 on a clean slate in terms of unsecured loans.

Now FCI will have the usual working capital loans through bonds, ways and means advances, and short-term loans on its books.

The interesting part is that the Centre has outpaced its own plan while doing so. The Union Budget 2021-22 had envisaged a cash infusion of Rs 1.2 trillion to FCI last fiscal year (revised estimate for FY21). This was close to half the NSSF-FCI loan pile, according to estimates.

This would have kept FCI still indebted to the NSSF. But the Centre paid more, at actuals, to clear the NSSF debt.

Due to this one-time settlement, FCI will be deleveraged, its financial rating will improve, and lenders may charge a lower rate of interest on loans in future.

It will improve its cash balance and bring efficiency in its operations, Atish Chandra, chairman and managing director at FCI, told Business Standard.

“The government transferred Rs 4.63 trillion to FCI in FY21 against the Budget estimate of Rs 77,982 crore. This additional transfer has cleared the NSSF debt,” Chandra said.

The revised estimate for FY21 had shown an allocation of Rs 3.44 trillion towards FCI, reflecting a partial loan clean-up. The extra amount of Rs 1.19 trillion is what the Centre transferred ahead of its own target. The transfer of Rs 4.63 trillion from the government to FCI includes the food subsidy not just for the usual offtake under the National Food Security Act, but also the additional offtake of FCI stocks under the Pradhan Mantri Garib Kalyan Anna Yojana, the emergency food provision programme instituted to palliate the impact of the pandemic.

Siraj Hussain, former chairman of FCI, said the organisation would save on interest costs.

“The economic cost of procurement may reduce a little bit. But the core problems of excess stocks and managing open-ended procurement operations when production is rising every year still remain,” he told Business Standard.

The Centre’s food subsidy spending also includes that incurred by decentralised procurement states (DCP), which lies outside the purview of FCI. The Budget has estimated spending on DCP at Rs 78,338 crore in FY21 (RE) and Rs 40,000 crore in FY22 (BE).

It is not known if the arrears of subsidy to DCP states have been fully paid.

For the government, who did the long-awaited correction, this will most likely bring the NSSF debt on its own books. This will add to the Centre’s rising interest outgo in the medium term because NSSF loans are considerably costlier than market borrowing. 
 

However, the jury is still out on whether the Centre will stick to its fiscal deficit target of 9.5 per cent of gross domestic product (GDP). The latest data shows that tax revenues, especially from personal income tax and goods and services tax, have exceeded the revised estimates.

Economists are expecting a fiscal deficit that is lower than the level of 9.5 per cent of GDP. But this extra transfer to FCI, worth 0.6 per cent of GDP, will surely add up to the deficit.

The FCI now has a more important job at hand. The focal agency of the world’s largest national food provision programme is currently sitting on a pile of about 56.4 million tonnes of rice and wheat, in addition to more than 31 million tonnes of unmilled paddy. This is the highest ever it has held in stocks.

The wheat marketing season has just begun. The procurement of crops being harvested and marketed now will only add to this, and the stocks may rise even further, officials said.

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Note: An earlier version of the story  carried an incorrect figure for FCI stocks