Govt eyes bonds issue to raise Rs40,000 crore from LIC

New Delhi: The food ministry doesn’t have enough money to make food subsidy payments to the Food Corporation of India (FCI) and faces a shortfall of ₹ 26,529 crore this year, due to inadequate allocation in the Union budget, the ministry said in a written reply in the Lok Sabha on Tuesday.

It added that it is considering raising ₹ 40,000 crore by issuing bonds to Life Insurance Corporation of India (LIC) to pay FCI dues of ₹ 50,730 crore from last year (2014-15), as previously reported in June.

The ministry’s projected requirement for food subsidy in 2015-16 is ₹ 1.46 trillion but the actual allocation in the budget is ₹ 1.2 trillion, food minister Ram Vilas Paswan said.

The food subsidy bill is transfered from the government to the FCI and states for procurement of foodgrains such as rice and wheat. These foodgrains are then supplied at highly subsidised rates to poor households through the targeted public distribution system (TPDS).

Of the shortfall of ₹ 26,529 crore in 2015-16, ₹ 22,348 crore is due to FCI and ₹ 4,081 crore is due to states which undertake decentralised procurement, meaning they carry out procurement and disbursal of foodgrains on behalf of FCI.

“The (food) department has regularly been pursuing the matter regarding allocation of sufficient funds for food subsidy,” Paswan said in his reply, adding that, “though the government has increased the budgetary allocation for food subsidy in recent years, owing to budgetary constraints and other pressing financial commitments, allocation made is still insufficient”.

However, Paswan said the government had initiated several measures to make funds available to FCI for smooth procurement of foodgrains. This includes a cash credit limit of ₹ 54,495 crore, enhancement of short-term loans from ₹ 20,000 crore to ₹ 30,000 crore, and allowing ways and means advance of ₹ 10,000 crore.

According to the ministry the accumulated shortfall in payment of food subsidy till 2014-15 is ₹ 53,054 crore.

Despite the shortage of food subsidy, implementation of the National Food Security Act (NFSA) or existing TPDS operations will not be affected, said an official with the food ministry who did not want to be named.

“If food subsidy is paid in time it saves costs as a shortage means more loans and interest burden for the government,” he said. “FCI can take loans only against food stocks in hand, but we don’t intend to have more stocks, as that imposes a reverse pressure on the subsidy bill (on account of paying for storage).”

To check leakage of food subsidy and reduce the subsidy burden, the government has initiated steps such as the digitization of ration cards and end-to-end computerisation of the TPDS supply chain. In another reply to the Lok Sabha, Paswan said that thus far 24 states have fully digitized ration cards of beneficiary households.

The ruling National Democratic Alliance government has previously said that it plans to initiate direct cash transfer of food subsidy as a way to check leakages. A plan to pilot cash transfers is slated to begin in union territories Chandigarh and Puducherry in September.

In January, a high-level committee on restructuring of FCI, chaired by former food minister Shanta Kumar, had recommended an overhaul of the FCI-managed TPDS. The panel estimated that cash transfers could save the exchequer ₹ 30,000 crore annually.