Cabinet Approves ₹10,700 Crore Equity Infusion for FCI

The Union Cabinet has approved a ₹10,700 crore equity infusion for the Food Corporation of India (FCI), aimed at reducing its reliance on high-interest debt for food distribution. This will help lower the government’s subsidy burden and support FCI’s modernization efforts.

Piyush Shukla Published On November 7th, 2024

In a significant financial boost, the Union Cabinet approved an equity infusion of ₹10,700 crore for the Food Corporation of India (FCI) on Wednesday. This move is expected to reduce FCI’s dependency on high-interest debt for funding its large-scale food distribution efforts. It aligns with the government’s ongoing strategy to enhance food security and minimize subsidy burdens.

Equity Infusion to Lower Debt Reliance

The infusion of equity aims to mitigate FCI’s reliance on various high-cost borrowing methods, such as cash credit and short-term loans. By decreasing FCI’s interest obligations, this support is anticipated to cut down the government’s subsidy expenses. Earlier in 2023, the government approved a similar infusion of ₹21,000 crore, reflecting an ongoing commitment to financially stabilize FCI and reduce borrowing requirements. This financial support will bolster FCI’s capability to execute its food distribution and storage modernization initiatives.

Key Role of FCI in National Food Security

FCI is integral to India’s food security, procuring grains at federally set Minimum Support Prices (MSP) and distributing them to about 800 million beneficiaries under the National Food Security Act of 2013. Nearly 70% of national food subsidies are managed through FCI, making it essential for stabilizing food prices and ensuring consistent food supply. The agency also maintains strategic grain reserves, vital for addressing market and supply chain fluctuations.

Reducing Economic Costs and Impact on Fiscal Deficit

With this capital boost, the government aims to reduce FCI’s economic costs, which include procurement, storage, and distribution of grains. Previously, off-budget funding had been used to manage FCI’s expenses, but the latest equity infusions should eliminate this need, reducing fiscal deficit pressures. Lower fiscal deficits can positively affect India’s sovereign credit ratings, which in turn help reduce the government’s borrowing costs.

Here’s a concise table on the ₹10,700 crore equity infusion for the Food Corporation of India (FCI):

Why in News	Key Points
Equity Infusion for FCI	₹10,700 crore equity infusion approved by Union Cabinet for FCI to reduce debt dependency and lower government subsidy burden.
FCI’s Role in Food Security	FCI handles 70% of India’s food subsidies, procures grains at MSP, and distributes to 800 million beneficiaries under NFSA 2013.
Previous Infusion	Earlier, a ₹21,000 crore equity infusion was approved to minimize borrowings and interest payouts.
Financial Measures	The ₹10,700 crore infusion aims to reduce FCI’s interest burden and “economic cost,” which includes procurement, storage, and distribution expenses.
Off-Budget Borrowing	FCI has relied on off-budget borrowing methods to manage financial gaps, but the infusion will reduce this reliance.
Debt Repayment	The Union government had previously paid off FCI’s debt of ₹3.39 lakh crore in 2020-21.
Fiscal Deficit Impact	Equity infusion helps reduce off-budget financing, which positively impacts India’s fiscal deficit and credit ratings.
FCI’s Funding Mechanism	The ₹10,700 crore equity will come through converting “ways and means” advance to FCI.
Related Scheme	National Food Security Act 2013 (NFSA) – ensures subsidized food grains distribution to beneficiaries.