Government planning to infuse funds into FCI; raises authorised capital to Rs 10,000 crore

The Cabinet on Wednesday increased the authorised capital of Food Corporation of India (FCI) to Rs 10,000 crore from the current Rs 3,500 crore. The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has approved increasing the authorised capital of the FCI.

“With the increase of authorised capital, additional equity capital can be infused in the FCI through Union Budget, to fund the foodgrains stock, perpetually held by the FCI,” an official statement said. This will reduce the borrowings of the FCI, save its interest cost and reduce the food subsidy, it added.

The FCI borrowings reached Rs 2.19 lakh crore as on October 31, 2019 The paid-up equity capital as on March 31, 2019, is Rs 3,447.58 crore against the authorised capital of Rs 3,500 crore.

In 2018-19, the government had decided to raise the equity capital by Rs 5,000 crore and had infused Rs 500 crore. So, the current decision will help the government to release the balance Rs 4,500 crore once the authorised capital of the FCI is enhanced.

The operations of the FCI require maintaining perpetual stock of foodgrains which needs to be funded by the Centre through equity or long-term loan. As on November 1, the agency had 736.5 lakh tonnes of wheat and rice (including 196.54 lakh tonnes in form of paddy). Though the stock position was lower than what it was in June 1 (821.4 lakh tonnes), still it is a concern considering the buffer norms of 307.7 lakh tonnes on October 1 and 214.1 lakh tonnes on Januray 1.

The more grains stocks than requirement increases the burden of the FCI to sell those in the open market, which could lead to losses. The estimated economic cost was 44 per cent higher from the minimum support price (MSP) of wheat and for rice it is 31.5 per cent more than the benchmark price in 2019-20. Besides, the carrying costs of wheat and rice have increased to Rs 5/kg per year now from Rs 2/kg in 2001-02.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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