Budget 2019: The Curious Case of Food Corporation of India’s Finances
What explains FCI’s reliance on large extra budgetary resources in 2018-19?
If the extra budgetary resources being raised by the Food Corporation of India are anything to go by, there are signs of increased funding requirements at India’s apex food procurement agency.
Data released on Friday as part of the budget documents show a sharp jump in resources raised by FCI via debt and "other" means. The category of ‘others’ can include borrowings from agencies such as the National Small Savings Fund (NSSF), Life Insurance Corporation of India or the Employee Provident Fund Organisation, said a senior economist who preferred not to be quoted.
- Total resources raised by FCI rose to Rs 1.96 lakh crore in 2018-19 in the revised estimates compared to the budget estimate of Rs 71,995 crore.
- Rs 1.6 lakh crore of this was raised through the "others’’ category, suggesting borrowings from agencies such as the NSSF, LIC or EPFO.
- The resource raising plan for FY20 is also large with the budget estimate being pegged at Rs 1.78 lakh crore.
- Again, much of this—Rs 1.3 lakh crore—is estimated to come from the "others" category.
Highlighting this jump, Sajjid Chinoy, chief India economist at JPMorgan, said that FCI had borrowed 1.3 percent of GDP off-budget last year. This year again it expects to borrow 1 percent of GDP, he said.
It (FCI borrowings) is a puzzle. This is a phenomenon that started two years ago. It’s hard to understand where they are borrowing from. Is it NSSF? Are their other sources of financing? But one has to inescapably reach the conclusion that these arrears have been built up for a while. Since the government doesn’t have the fiscal space to pay them as a budgetary allocation, so FCI has to go out and borrow from somewhere else.Sajjid Chinoy, Chief India Economist, JPMorgan
FCI’s Financing Pattern
FCI’s website carries financing pattern data only upto 2017-18. In that year the agency borrowed Rs 1.21 lakh crore from the NSSF. It also borrowed Rs 50,000 crore via the government’s "ways and means advances" intended for short-term government funding requirement. Another Rs 50,000 crore had been borrowed via short term unsecured loans and the rest was via bonds etc...
A similar funding pattern was followed in 2016-17, when Rs 70,000 crore was borrowed from NSSF. That year, too, the FCI sought funding via "ways and means advances" and unsecured short-term unsecured loans.
To be sure, the NSSF pool of borrowings became available to central government and its agencies such as FCI after the fourteenth finance commission recommendations were implemented in 2015-16.
Data for 2018-19 is not available on the FCI’s website.
However, the NSSF accounts released with the budget on Friday do not show any borrowing by FCI in 2018-19’s revised estimates. No borrowing is budgeted for 2019-20 either.
This could mean FCI may resort to borrowing from other agencies such as LIC and EPFO, something they’ve done in the past the economist quoted above said.
Off-Budget Financing On The Rise
The broader worry regarding the increased resource raising by FCI is the reliance on off-budget financing. This extra-budgetary spending is a matter of concern, said Neelkanth Mishra, India economist at Credit Suisse in his note. This off-budget spending has been rising over the years, and in FY19 has exceeded even the budget estimate, Mishra said.
Chinoy added that puts pressure on the consolidated deficit, beyond just the center’s fiscal deficit. The total public borrowings, centre, state and public sector enterprises included, is in excess of 8 percent of GDP now, he said. This means that a large share of household savings are being taken up by the public sector.
Friday’s budget confirms that pressure from off-budget and publc sector borrowings is on the rise, wrote Pranjul Bhandari, chief India economist at HSBC.
The budget confirms what we had been conjecturing over the last few months: that as the central government has been consolidating its fiscal deficit, off budget and PSE (public sector enterprises) borrowings have been rising too, from 1.4 percent of GDP in FY16 to 2.4 percent of GDP in FY19. It is worth noting, that of this, a significant additional Rs 1.2 lakh crore (0.6 percent of GDP) of borrowing has come from the Food Corporation of India in FY19.Pranjul Bhandari, Chief India Economist,HSBC.
