Finance

Lenders’ interest rate cut to enable FCI to save Rs 750 crore annually

The rate of interest for FCI for the CCL has been fixed at an average of one month of marginal cost of funds-based lending rate (MCLR) of the top five banks in the Food Credit Consortium as on the last day of the previous month.

In a move which would reduce the government’s food subsidy expenses, a consortium of banks has agreed to lower the interest rate on the cash credit limit (CCL) provided to the Food Corporation of India (FCI) for meeting its working capital requirement.  

Sources told FE that a meeting held last week by the Food Credit Consortium Committee of 54 banks headed by State Bank of India, agreed to cut annual interest rate on the CCL availed by FCI from 7.71 % to 6.68%, after series of negotiations.

The rate of interest for FCI for the CCL has been fixed at an average of one month of marginal cost of funds-based lending rate (MCLR) of the top five banks in the Food Credit Consortium as on the last day of the previous month.

Sources said that the reduction in interest rate on CCL, applicable from January 1, 2022, would help reduce FCI’s expenses by `750 crore annually. FCI gets the CCL against the grain stocks held and it is currently stands at `9,495 crore.

Meanwhile, the government has decided to infuse equity worth Rs 1,900 crore to FCI in 2022-23. This infusion of equity will take the government’s equity in FCI to Rs 9936 crore. “Increase in equity would reduce the overall borrowing and interest savings of Rs 130 crore per annum,” a food ministry official said.

The expenditure towards food subsidy has been on the rise due to annual rise in minimum support price (MSP) for paddy and wheat and ‘open-ended’ purchase operations leading to excess grains stocks held by FCI.

The central issue price of Rs 3, Rs 2, Rs 1 for a kg of rice, wheat and coarse grains under the National Food Security Act has not been revised since 2013. On the other hand, FCI’S economic cost (MSP to farmers, storage, transportation and other costs) of rice and wheat for 2021-22 is Rs 35.97 and Rs 24.99 per kg, respectively.

The Union Budget (2022-23) has made around 28% less provision for food subsidy allocation of Rs 2.06 lakh crore against the revised estimates of Rs 2.86 lakh crore in 2021-22.

Lesser provisioning of food subsidy is because of additional expenses incurred because of implementation of Pradhan Mantri Garib Kalyan Anna Yojana till March 31 2022.FCI is the central agency that manages procurement, storage and transportation of rice and wheat to states for distribution, mainly for the NFSA and other welfare schemes.

More than 800 million people get highly subsidised 5-kg foodgrains per head per month under the NFSA. This includes around 2.5 crore Antyodaya Anna Yojana households, which constitute the poorest of the poor. They are entitled to 35 kg per household per month at subsidised prices.

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