The central government has repaid the unsecured loan of the National Small Savings Fund (NSSF) over the Food Corporation of India (FCI). Thus the process that started in 2017 is over.
The central government has infused cash before the end of FY 2020-21, so that FCI can start FY 2022 without any stress in the case of unsecured loans.
Now over FCI there will be general working capital loans through bonds, WMA and short term loans.
The interesting aspect of this is that the government has done this work faster than its plan. In the Union Budget 2021-22, the last fiscal year (Revised Estimates for FY 2021) was mentioned to add 1.2 lakh crore rupees to FCI. According to estimates, this amount was almost half of the debt burden of NSSF-FCI.
Due to this, the NSIF would still have had a loan on FCI. But the Center actually paid the maximum amount to repay the NSSF loan.
This one-time payment will reduce FCI’s debt, improve its financial rating, and banks can lend to it at a lower interest rate in the future.
FCI chairman and managing director Atish Chandra told Business Standard that the government’s move would improve FCI’s cash deposits and improve efficiency in its operations.
Chandra said, ‘The Center had transferred Rs 4.63 lakh crore to FCI in March 2021, instead of the budget estimate of Rs 77,982 crore. The loan from NSSF was repaid with this additional amount. ‘
The revised estimate for FY 2021 showed an allocation of Rs 3.44 lakh crore to FCI indicating partial loan repayment.
This is an additional amount of Rs 1.19 lakh crore which the Center has transferred before its own target.
The transfer of Rs 4.63 lakh crore to FCI by the government does not include food subsidy only for general lifting under the National Food Security Act, but also to reduce the impact of the epidemic, an emergency food provision program launched by Prime Minister Poor Welfare subsidy is also included in addition to FCI reserves under Kalyan Anna Yojana.
Former chairman of FCI Siraj Hussain said that the organization will save on interest costs.
He told Business Standard, “The economic cost of procurement may decline slightly, but at a time when production is increasing every year, the main problem of managing excess reserves and open procurement operations remains.”
The Center’s food subsidy spending includes decentralized procurement (DCP) at the state level which falls outside the purview of FCI. The budget estimates the expenditure on DCP to be Rs 78,338 crore in FY 2021 (revised estimate) and Rs 40,000 crore in FY 2022 (budget estimate).
The expenditure on DCP is not yet available in FY 2021 but the dues on the states are pending. Hussain said that it was not yet known whether the payments of the states making decentralized procurement of foodgrains had been repaid.
The government has taken long-standing reforms by taking this step, but it is very likely that the loan of NSSF will now come over the government. As such, the increase in the interest amount of the Center will increase in the medium term as the NSSF loan is particularly expensive with market borrowings.