The finance ministry is set to clear almost the entire food subsidy dues to the Food Corporation of India (FCI) for the current fiscal before the year-end, despite an additional expenditure obligation of Rs 1 lakh crore under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).

Last year, the Centre extinguished its humongous off-budget liabilities to National Small Savings Fund (NSSF) on account of a decade-long mechanism where FCI used to take loans from NSSF. The move was part of an effort to clean up the Centre’s own and the corporation’s balance sheets and end a vicious cycle of debt FCI had got into.

Sources told FE that the ministry allocated more than Rs 1.45 lakh crore to FCI as on December 31, 2021, against estimated food subsidy budget of Rs 2.28 lakh crore – including spending on PMGKAY – for 2021-22. The rest of the subsidy expenses would be provided before March 31, 2022, so that FCI’s balance sheet remained clean, they added.

Under the PMGKAY, an additional foodgrain of 5 kg per person per month is being supplied to more than 80 crore beneficiaries free of cost, besides highly subsidised foodgrain supplies of similar quantity under the National Food Security Act. PMGKAY was launched as part of the economic response to Covid-19 in April 2020. In the current fiscal, PMGKAY is being implemented during May-March (2021-22).

Because of less provisioning of food subsidy budget for FCI against the expenses by FCI, the corporation was forced to avail loans from various sources such as the NSSF, short term loans, bonds and cash credit limits sanctioned by the banks.

The fiscal crisis faced by FCI reached an alarming level by the end of 2019-20, when total outstanding dues of FCI rose to `2.43 lakh crore against the finance ministry’s allocation of Rs 75,000 crore to FCI under food subsidy budget.

However, in the revised budget estimate of 2020-21, the finance ministry made provisions for Rs 3.44 lakh crore under food subsidy expenses to FCI against the budget estimate of only Rs 77,982 crore. This enabled FCI to pay back the entire Rs 3.39 lakh crore worth of loans availed from NSSF since 2016. So, the total interest expenditure of FCI in FY22 will be Rs 4,153 crore against Rs 29,068 crore incurred in the previous fiscal.

The expenditure towards food subsidy has been on the rise due to annual increases in the minimum support prices (MSP) for paddy and wheat and an ‘open-ended’ purchase operations leading to grain stocks much in excess of buffer levels with FCI. The central issue prices of Rs 3, Rs 2 and Rs 1 for a kg of rice, wheat and coarse grains, respectively, under NFSA has not been revised since 2013.

Against this, the FCI’s economic cost (MSP to farmers, storage, transportation and other costs) of rice and wheat for 2021-22 was estimated at Rs 32.96 and Rs 21.49 per kg, respectively.

FCI is the key central agency that manages procurement, storage and transportation of rice and wheat to states for distribution mainly for the NFSA and other welfare schemes. More than 800 million people get highly subsidised 5 kg foodgrain per head per month under NFSA. This includes around 2.5 crore Antyodaya Anna Yojana households, which constitute the poorest of the poor. They are entitled to 35 kg per household per month at subsidised prices.