Sacks of wheat sit under tarps while being stored in the open at the site of a Food Corporation of India grain warehouse in Sonepat, Haryana, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Food Corporation’s Reliance On National Small Savings Fund Rose Further In FY19

Food Corporation of India Ltd. sourced more than two-thirds of its funding requirements in 2018-19 from the National Small Savings Fund, shows data available on the FCI website.

Budget documents published in February had suggested large borrowings by FCI from sources other than the markets. Details of financing now put out by FCI shows that all of this borrowing came from the small savings pool, which has increasingly been used by the government and government agencies to meet funding needs.

The FCI borrowed Rs. 1.86 lakh crore from the NSSF in FY19 compared to Rs. 1.21 lakh crore in FY18 and Rs 70,000 crore in the year before that.

The loans from the National Small Savings Fund constituted 67.3 percent of the FCI’s finances for FY19.

In addition, FCI borrowed Rs 12,000 crore from the ‘Ways And Means Advances’ or WMA window provided by the RBI for short term credit to the government and its agencies. In FY18, FCI’s borrowings from this source were larger at Rs 50,000 crore. WMA are short term loans, released and recovered by the government in the same financial year.

FCI also raised Rs 50,000 crore through short term loans and Rs 15,737 crore through government guaranteed bonds.

FCI’s finances have drawn scrutiny as it is feared that the government has been delaying payment of food subsidy arrears in order to meet its stated fiscal deficit targets. FCI uses this subsidy to procure food grain to distribute via the public distribution system. If the government fails to pay out the subsidy, FCI has to resort to increased borrowings.

With the government rolling over payments, agencies have been tapping into bond markets and sources such as the NSSF, Life Insurance Corporation and Employee Provident Fund Organisation, said Devendra Pant, chief economist and head of public finance at India Ratings.

The NSSF is not intended for usage of this kind, said Radhika Pandey, a consultant with the National Institute of Public Finance and Policy. Borrowing to finance subsidies masks the true extent of the fiscal deficit as these borrowings do not reflect in the fiscal deficit calculation, she added.

Small Savings: The Government’s Big Saviour

With its finances under pressure for the last two years, the government has increasingly relied on the pool of small savings, a trend that was highlighted by BloombergQuint mid-way through the last financial year in an article titled: Small Savings, The Government’s Big Saviour?

Data for the full financial year corroborates that trend.

  • In FY19, the government itself borrowed Rs 1.25 lakh crore from the NSSF, higher than the budget estimates of Rs 75,000 crore.
  • The FCI borrowed Rs 1.86 lakh crore.
  • The National Highway Authority of India, Indian Railway Finance Corporation, Rural Electrification corporation and other government agencies borrowed another Rs 42,636 crore, shows details of the NSSF budget presented along with the union budget documents.
Taken together, the government and its units borrowed close to Rs 3.5 lakh crore from NSSF in FY19.

For FY20, the interim budget pegged borrowings from NSSF at Rs 75,000 crore. However, Pant at India Ratings believes this number may rise.

“India Ratings believes stepping-up borrowing from NSSF will ease pressure on the benchmark 10-year government-security yield and keep the cost of government’s borrowings through extra budgetary resources (EBR) low,” Pant said in a note on Feb.27.