Government Increases Authorised Capital For Food Corporation Of India

The Indian government has decided to increase the authorised equity capital of Food Corporation of India amid concerns about a build-up of debt at the country’s apex food procurement agency.The cabinet on Wednesday decided to increase the authorised capital of FCI from the existing Rs 3,500 crore to Rs 10,000 crore, the government said in a press release.“With the increase of authorised capital, additional equity capital can be infused in FCI through Union Budget, to fund the foodgrains stock, perpetually held by FCI. This will reduce the borrowings of FCI, save interest cost of FCI and reduce food subsidy in consequence,” the press release said.Over the last few years, the debt taken on by FCI has ballooned with the agency expanding borrowings from sources like the National Small Savings Fund. This increase in borrowing has been likely due to delayed subsidy payments from the government.According to the latest data available on the FCI website, the agency’s short-term and long-term borrowings in FY19 stood at Rs 2.77 lakh crore, while its equity capital stood at Rs 3,447.58 crore. Some of the borrowings, such as those from the RBI’s ‘ways and means advances’ window are short term in nature and repaid during the course of the year, the FCI specified..The increase in FCI’s borrowings has been driven by delayed subsidy payments.In a note dated Aug. 22, Bank of America-Merrill Lynch noted that the Indian government has struggled to pay subsidies recently and has released amounts much lower lower than the funding shortfall at FCI. The FCI has instead borrowed close to 0.7 percent of GDP over the last three years, the research house noted. “Including these borrowings, we estimate the Government now has close to Rs 2 lakh crore of unpaid/carried forward subsidies to the FCI,” the report said.The increased capital, once infused, will increase FCI’s borrowing capacity, said Devendra Kumar Pant, chief economist at India Ratings and Research. Pant pointed out that as per the latest available version of the FCI Act, the amount borrowed by the agency cannot exceed ten times its paid-up capital and the reserve fund.

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Government Increases Authorised Capital For Food Corporation Of India

Bloomberg Quint