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Govt pays 3.39 trln rupees in one shot to clean up FCI balance sheet

Informist, Wednesday, Apr 7, 2021

 

–Govt source: FCI's outstanding debt to small savings fund zero now

–FY21 FCI debt repayment 1.19 trln rupees higher than aim

–Paid 4.63 trln rupees to FCI as food subsidy in FY21

–FCI's total debt 602 bln rupees as on Mar 31, 2021

–FY22 food subsidy likely lower due to debt repayment

 

By Adrija Chatterjee and Shubham Batra

 

NEW DELHI – The government has cleaned up the balance sheet of Food Corp of India in one swoop by repaying the entire outstanding loans the food procurement agency owed to the National Small Savings Fund.

 

The decision to clean up FCI's balance sheet may have happened on the back of higher-than-projected revenues. 

 

The government paid 3.39 trln rupees last month to FCI, a whopping 1.19 trln rupees more than it had budgeted for, to clear the outstanding dues it owed to the small savings fund, an official from the procurement agency said.

 

"As of Mar 31, 2021, the outstanding loan from NSSF is zero," the official told Informist.

 

FCI's outstanding loans from the small savings fund were 2.55 trln rupees a year ago.

 

In all, the government transferred 4.63 trln rupees to FCI in 2020-21, including 1.24 trln rupees of food subsidy. The revised Budget estimates had projected total allocation to FCI in 2020-21 at 3.44 trln rupees.

 

A senior finance ministry official confirmed the development.

 

"There is a possibility that more than what was originally planned have been given to FCI," the finance ministry official said.

 

"The government decided to clean up FCI's balance sheet at one go since it is a very strategic organisation," the official said.

 

Following this, the food procurement agency's total outstanding debt has come down to 602 bln rupees as on Mar 31, from 3.28 trln rupees a year ago.

 

Besides borrowing from the national small savings fund, the nodal agency for procurement and distribution of subsidised food grain issues bonds and takes short-term loans from banks.

 

In the Budget, Finance Minister Nirmala Sitharaman had announced plans to discontinue the practice of taking loans from small savings to fund the food subsidy.

 

As a result of this clean-up, the revised estimate for food subsidy in 2020-21 was projected to rise nearly four-fold to 4.23 trln rupees. The surge was also partly on account of the government providing free food grains to poor during the nationwide lockdown to curb the spread of coronavirus.

 

FCI accounts for nearly 80% of the total food subsidy bill of the government.

 

The FCI has been taking off-Budget loans from small savings fund since 2016-17 in a bid to show a lower fiscal deficit.

 

Since then, the government has been artificially controlling its fiscal deficit by converting substantial portions of its food subsidy bill to small savings loans.  

 

On a cumulative basis, the FCI has taken loan worth 4.27 trln rupees from the National Small Savings Fund in the last five years.

 

The small savings fund, which manages the government's small savings schemes such as National Savings Certificate and Public Provident Fund, has been sitting on a pile of cash ever since most states stopped taking loans from it in 2016-17.

 

The Budget for 2021-22 was lauded for discontinuing a practice that many thought had seriously impacted the credibility of government's fiscal deficit numbers.

 

The government's move to clean up the balance sheet of FCI was partly responsible for the Budget projecting the fiscal deficit in 2020-21 to rise to a record 9.5% of GDP.   

 

The cleaning up of FCI's balance sheet could mean that the food subsidy in the current financial year started Apr 1 could be lower than the projected 2.43 trln rupees.

 

The food subsidy for 2021-22 also included a provision of 550 bln rupees for repaying outstanding debt of small savings fund, which has now been repaid.

 

Interestingly, the Centre has also prematurely paid 550 bln rupees in 2020-21 itself that it had estimated for FCI as repayment in the current fiscal.  End

 

Edited by Vandana Hingorani

 

 

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