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State-run Food Corporation of India (FCI) has moved a proposal to raise Rs 40,000 crore through long-term bonds from LIC to liquidate subsidy arrears due from the government.
"These are specially designed bonds meant for LIC to liquidate subsidy arrears due from the government to FCI," source said.
As per the proposal, the 10-year bonds will be redeemed at 10% per annum. It will be raised at government security interest rate plus 30-40 basis points, which comes at around 8.50%.
"FCI has moved a proposal to the Food Ministry for raising Rs 40,000 crore to repay the amount it raised from its cash credit limit and short-term loan due to rising arrears," the source added.
Subsidy arrears of FCI, the nodal agency for procurement and distribution of grains, have crossed Rs 55,000 crore till March 31.
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FCI has a cash credit limit of Rs 54,495 crore with a consortium of 67 banks at a rate of 10.51%. In addition it can raise short-term loan of up to Rs 30,000 crore by inviting tenders from banks.
The corporation is estimated to save Rs 5,000 crore in 10 years, if these bonds are raised, as this a cheaper way of raising funds compared to cash credit limit and short-term loan, source said.
In 2014-15, the government had allocated Rs 92,000 crore as food subsidy, out of which Rs 91,995.35 crore was given to FCI. The subsidy incurred in the year was Rs 1,02,476 crore.
In 2015-16, the government has allocated Rs 97,000 crore as food subsidy to FCI against estimated bill of Rs 1,18,000 crore.
The bulk of the food subsidy is paid to FCI for running the public distribution system (PDS).
Operation cost has risen sharply in the past few years due to increase in the minimum support prices (MSP) of grains as well as high storage costs.
