Bangalore: Less than a week after India announced a record harvest, the nation’s main grain-buying agency is running out of money for its massive, nationwide purchase operation.

Over the last month, the state-run Food Corporation of India (FCI) has twice stopped payments to state governments, various grain-purchasing agencies and rice millers who buy wheat and rice, the main food crops, from millions of farmers, a top government official said on condition of anonymity.

“If this financial crisis continues, FCI and state agencies funded by it will not be able to procure grain; there is no money for August and September," the official said. “This is a serious situation, and it is being brought to the notice of the finance minister."

Photo by Bloomberg

A finance ministry official only said that the request had been received. He, too, declined to be named.

In India’s granaries, Punjab and Haryana, about 99% of the harvest is now bought by state-run agencies.

With no income of its own except government subsidies— and since it is not allowed to legally refuse to buy produce from the farmer—FCI is ensuring salaries to employees and workers who heft sacks of grain, freight charges and interest payments to a consortium of 59 banks are kept going so procurement does not immediately stop.

India’s record harvest of 241 million tonnes, and the government’s announcement of a Rs50 per quintal bonus to wheat farmers in April has further strained FCI’s resources at a time when it’s preparing to dramatically enhance procurement to stock up for the impending right to food legislation, due to be introduced in Parliament next month.

The finance ministry releases subsidy every three months to FCI, which is also supposed to be paid by the ministry of rural development for social security programmes that involve foodgrain, such as the midday meal scheme that aims at keeping children in school.

So tardy were those payments that food subsidy defaults from the government to FCI grew 800% over the last six years, according to a March 2011 bulletin issued by the ministry of agriculture.

Over the same period, the support price—the money paid to the farmer—for wheat and rice has almost doubled.

From Rs6,800 crore for the last fiscal, subsidy arrears exceed Rs11,000 crore today.

FCI tides over annual shortfall by borrowing from banks. But its annual government-secured credit limit of Rs35,000 crore has been breached.

In March, the State Bank of India, FCI’s lead banker, refused short-term loans.

Set up 47 years ago, FCI looks after the economic interests of farmers by paying government-mandated prices; distributes the bulk of India’s grain through the public distribution system; and stocks vast warehouses for current and emergency food needs.

As of last month, it held foodgrain valued at Rs51,000 crore.