Financing The Food Chain

Context: It will be difficult for the government to spend from its budgetary resources to ensure food grains and subsidy distributions due to acute fiscal stress.

Steps taken by the government to ensure food security:

• Free grain distribution: The PM Garib Kalyan Yojana extended for five months till November 2020.

• Provide relief to the millions of poor people.
• Reduce inventory cost of Food Corporation of India (FCI) by clearing bulging food stocks; (Carrying cost of buffer – Rs 54.03 a tonne).

• Fertilizer Subsidy: Estimated at Rs 80,000 crore for the year 2020.

Challenges to food security: 

• High fiscal deficit: The total food subsidy bill in 2020-21 is estimated at Rs3.03 trillion.

• The central government will have to provide for over Rs 5.70 trillion from its own finances in 2020-21, to clear all its subsidy and payment dues to the FCI.

• Problems in FCI: 

• • • The agency had an outstanding loan (as on March 31, 2020) of Rs 2.54 trillion from National Small Savings Fund (NSSF).
    • High borrowings leading to high economic costs: Economic cost includes the procurement price plus storage, transportation, interest costs and other expenditures

• Looming fertilizer issues: 

• Subsidy dues adding to the deficit: The year 2020-21 started with an unpaid subsidy of almost Rs 48,000 crore.
• Truncated budget of Department of Fertiliser: Clubbing the department under the category “B” of ministers under the expenditure management regime has restricted its spending to 80% only.

• Industry’s demand for Special banking Arrangements with RBI will also not help as the challenge of financing by the government remains.

Way Forward: 

• Prepare for fiscal slippage: The government should be prepared to absorb some fiscal slippage by 1-2 percentage points that are bound to happen this year. 

• The RBI could consider monetizing the deficit (by printing more currency notes).