FCI, responsible for overseeing the National Food Security Act, does not have any stream of income of its own. In the five years of the Modi Era, Food Corporation of India has seen its debt level magnified itself from ₹91,409 crore to ₹2.65 lakh crore in March 2019.
The debt levels went starkly up in 2016-17, because the government decided to start giving credit to the FCI from the National Small Savings Fund (NSSF) to fuse the gap between what the government should have provided for in the fiscal budget and what it could actually dispense due to its budgetary constraints, according to The Print.
FCI is completely dependent for revenue on the Centre. The Centre is responsible to fix the minimum support price for buying the foodgrains from the farmers, as well as the issue price which is the price at which they are supplied to the states. This difference, along with the cost of distribution, are paid by the government to FCI in the form of food subsidy.
The last few years have seen the government increasingly budget a reduced amount than what is required as food subsidy. To recompense for the shortfall, the FCI has been borrowing from the NSSF every year. As of 31 March 2019, ₹1.91 lakh crore of the FCI’s debt is through the NSSF, according to the government’s own data, reported The Print.
The passing of the National Food Security Act, 2013, augmented the number of beneficiaries while dipping the sale price of rice and wheat. At the same time, procurement prices have been rising heavily with higher minimum support prices and rising procurement by the FCI. This could be the reason behind this rising debt.
Explaining why the FCI debt is rising a Bank of America Merrill Lynch Global Research noted in August, “The FCI buys high and sells low, managing on subsidies paid by the government. India’s food subsidy bill has risen rapidly, doubling in six years (Rs 1.7 lakh crore in financial year 2018-19, or 0.9 per cent of GDP). Yet, India’s food subsidies have remained relatively stable as a percentage of the GDP.”
“The government has struggled to pay these subsidies recently and has released amounts much lower than the funding shortfall at the FCI, the government may have close to ₹2 lakh crore of unpaid /carried-forward subsidies to the FCI. The FCI has no inherent cash flows with which it can repay its debt. A reduction of inventories will only partly help in deleveraging. The government of India must at some point provide the FCI with the ₹2 lakh crore in unpaid dues,” the note pointed out, reported The Print.