Govt hikes Food Corporation capital to Rs 10,000 cr to help it manage stock

The Union Cabinet on Wednesday increased the authorised capital of the Food Corporation of India (FCI) by Rs 6,500 crore to Rs 10,000 crore. This will allow the FCI, which is sitting on a huge stockpile of foodgrain, to manage its inventories and procure more.

The current paid-up capital of the FCI (Rs 3,500 crore) allowed it to borrow up to 10 times more, that is Rs 35,000 crore, according to the FCI Act, 1964. The new capital will extend the borrowing limit to Rs 1 trillion.

The Centre will fund this expanded authorised capital from its own resources.

The FCI, the nodal agency for procurement and distribution of foodgrain, will now be able to reduce debt and interest cost.

“With increase in authorised capital, additional equity capital can be infused in the FCI through the Union Budget, to fund the foodgrain stock,” said an official statement, adding: “The operations of the FCI require maintaining perpetual stock of foodgrain which needs to be funded by the Government of India through equity or long-term loans.”

As of October 1, 2019, the FCI’s foodgrain stock was estimated to be 64.23 million tonnes, which is 108 per cent more than the required buffer and strategic reserve norms. It has a storage capacity of almost 75 million tonnes, of which 63 million tonnes (84 per cent) is in proper storage.

“Against a requirement of around 50-56 million tonnes of foodgrain to run the National Food Security Act (NFSA) and other welfare schemes, the Centre ends up buying almost 80 million tonnes of wheat and rice. There has to be a mismatch somewhere, which is showing up in the stock levels,” a senior FCI official said.

The procurement far exceeds its requirement, officials said, adding that this led to the FCI being in poor financial health. Even if the Centre released all allocated subsidy for 2019-20 (FY20), the FCI would still have an outstanding subsidy bill of Rs 1.74 trillion in March next year.

It will also have loans to the tune of Rs 1.45 trillion from the National Small Savings Funds (NSSF) till the end of FY20.

At the beginning of FY20, the FCI had a subsidy due of Rs 1.91 trillion and equal amount loan from the NSSF. It required Rs 1.4 trillion crore for subsidy payments in the financial year and Rs 46,000 crore to pay back NSSF’s loan.

The total allocation under the Union Budget, however, was Rs 1.51 trillion.

For FY20, the total food subsidy of Rs 1.84 trillion, of which the FCI’s share was Rs 1.51 trillion. The remaining was state’s share in procurement operations. So the difference is Rs 35,000 crore.

Of this, about Rs 1 trillion has been released by the Centre so far. The FCI might have to seek a loan for the rest.

Officials said after adding the outstanding dues and other liabilities, the total subsidy outstanding at the end of FY20 is expected to be Rs 1.74 trillion.