To ease the pressure on its finances, the Centre will arrange a fresh loan of Rs 27,000 crore from the National Small Savings Fund (NSSF) for the Food Corporation of India (FCI) to service the principal dues of an earlier loan taken by FCI to run the government’s food subsidy programme.
This is the second instance of the FCI tapping into the NSSF to repay the principal component of an earlier loan. The interest parts of these loans are funded out of the Budget.
The FCI had taken fresh loans of Rs 65,000 crore in FY18 from NSSF not only to meet its expenses but also to repay Rs 25,000 crore as principal amount due to NSSF. The NSSF route was used by the Centre to reduce the direct fiscal burden — had these monies were provided from the budget, the fiscal slippage (as percentage of GDP) last year would have been higher than 33 basis points reported.
The government is facing the spectre of a loan trap in order to undertake the food procurement, transportation and storage operations under the National Food Security Act uninterruptedly.
With the latest loan, the outstanding debt of FCI (from NSSF) would remain at Rs 1.21 lakh crore. The Centre might even take an additional NSSF loan by March if the fiscal situation deteriorates.
The budgeted food subsidy through FCI for the current fiscal is Rs 1.38 lakh crore (the total food subsidy is Rs 1.7 lakh crore).
The Centre’s net tax receipts (post refunds and devolution to states) grew just 4 per cent y-o-y in April-October of FY19, indicating a shortfall in indirect tax collections. A y-o-y growth of 19 per cent is required to raise the budgeted amount of Rs 14.8 lakh crore from taxes for the full year.
As the gap between the subsidy amounts released to FCI and its actual operational expenses widened over the years, it used to be bridged with the agency taking short-term (90 days) loans and cash credit to meet its expenses.
In FY17, the government chose to end this ad hoc mechanism by arranging a five-year loan from NSSF of Rs 70,000 crore at a high rate of 8.8 per cent per annum at its own cost.
Although the idea was to clear the arrears to FCI, that did not materialise and the Centre had to take another NSSF loan of Rs 65,000 crore in FY18 at an 8.4 per cent interest to not only meet the FCI’s expenses but also to service the previous loan.
Such arrangements mean normal government expenditure was being substituted with loans in the accounts of PSUs instead of cash on fears of fiscal slippage. —FE