FCI’s Rs 10,700 crore equity boost to aid inflation control, cut food subsidy bill, say experts

FCI procures food grains at Minimum Support Prices (MSP), maintains strategic reserves and overseas distribution and national food security.

The Union Cabinet’s decision to infuse equity into the Food Corporation of India (FCI) would help reduce dependency on short-term borrowings and, in turn, cut interest costs for the corporation, according to experts. The Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi on November 6 approved an equity infusion of Rs 10,700 crore into FCI.

“The equity infusion is to reduce the dependence of FCI on short-term loans. With the infusion, FCI will have some additional funds to the tune of Rs 10,000 crore available, and the government can also intervene in any crop season required. The equity infusion is a good step; the burden of interest costs on FCI will be reduced slightly. Along with it, the pressure on short-term savings to give funds to FCI will reduce. If FCI takes money for the short term from the open market, the interest rates will be high. FCI's responsibility has seen an increase with higher stock limits, so the equity infusion was necessary,” agricultural economist Vijay Sardana told Moneycontrol.

With a significant expansion in FCI’s operations over the years, such as modernising its storage facilities, improving transportation networks, and adopting advanced technologies, an equity infusion would enable the corporation to ensure food security in the country effectively, experts said.

FCI’s equity reached Rs 10,157 crore in the financial year 2023-24, from Rs 4,496 crore in FY20. The government's nodal agency for procurement and distribution of food grains started its journey in 1964 with an authorised capital of Rs 100 crore and equity of Rs 4 crore.

Set up under the Food Corporation Act 1964, FCI was founded to ensure effective price support operations for safeguarding the interests of farmers, distribution of food grains throughout the country for the public distribution system, and maintaining satisfactory levels of operational and buffer stocks of food grains to assure food security.

Lower food subsidy

To support operations, FCI has to resort to options such as cash credit and short-term loans, which burden it with high interest rates. The equity infusion by the government would also result in lower food subsidy, say experts.

"The Government of India is likely to spend about Rs 1,80,000 crore on food subsidy this year. The latest infusion of equity in FCI may reduce the interest cost by about Rs 800 crore, which means that the food subsidy will be lower by this amount. It is a pity that FCI is without a CMD for about two months," agri expert Siraj Husain told Moneycontrol.

A pivotal player in ensuring food security in the country, FCI procures food grains at Minimum Support Prices (MSP), maintains strategic reserves, and oversees distribution and national food security. FCI also manages the government’s free foodgrain scheme—Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)—which benefits over 800 million people. Under PMGKAY, the Centre provides 5 kg of free food grains per month to 813.5 million poor at no cost.

At the Cabinet briefing, Union Minister of Information and Broadcasting of India, Ashwini Vaishnaw, said the decision is aimed at supporting the agricultural sector by enhancing FCI’s operational and financial strength, reflecting the government's commitment to empowering farmers and reinforcing India’s agrarian economy.