The Centre axed the food subsidy by Rs 40,000 crore to help achieve its fiscal deficit target for the year 2016-17, according to a report by Financial Express.
Had this adjustment not been done, the fiscal deficit would have risen to 3.68 percent of the Gross Domestic Product (GDP) from the current deficit of 3.51 percent.
The Food Corporation of India (FCI), through which most of this subsidy is routed, was also informed in March that Rs 25,000 crore out of the Rs 1.03 lakh crore released to them in October 2016 was to be treated as a loan from the National Small Savings Fund (NSSF).
However, FCI is now the debtor and will have to return the money borrowed at an interest rate of 8.8 percent in yearly instalments in five years.
There was a gap between the budgeted subsidies and the needs of FCI and other agencies which had resulted in increase in government's dues to these entities to the tune of Rs 62,000 crore by March-end.
FCI may now face further squeeze due to the repayment obligations of this subsidy being converted into a NSSF loan.
While FCI's subsidy requirement was Rs 1.16 lakh crore this financial year, the Centre's budget estimate fell short by Rs 9,000 crore.
In February, FCI had received another loan of Rs 45,000 crore under a five-year special arrangement from the NSSF. This loan is being repaid through equal annual instalments.
The corporation will be in trouble if the government does not release the subsidy arrears and promptly compensates it for the NSSF loan burden imposed on it.
Such expenses incurred by the corporation inflate the Centre's food subsidy bill. FCI's costs of procurement, storage and transportation have risen over the years, driven by the rise in the minimum support price and the extra stocks held by the corporation.
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