FCI Secures Short-Term Loans of Rs 19,190 Crore

FCI Secures Short-Term Loan Amid Rising Costs Despite Subsidy Release

The Food Corporation of India (FCI) has opted for a short-term loan amounting to Rs 19,190 crore, even after receiving a substantial food subsidy of Rs 27,590 crore. This decision comes in the wake of soaring economic costs associated with maintaining surplus grain stocks. Currently, FCI holds over 74.67 million tonnes (MT) of grains, facing significant cash flow challenges as its procurement rates exceed the distribution demands under the free ration initiative.

For the fiscal year 2026 (FY26), FCI has estimated its food security expenditures at Rs 1.43 lakh crore, against an overarching food subsidy allocation of Rs 2.03 trillion. Despite the finance ministry allocating 20% of its annual food subsidy over the first two months of FY26, the corporation continues to utilize the short-term loan facility, primarily due to the inflated operational costs prompted by excessive grain inventories.

Sources indicate that the finance ministry has been consistently disbursing weekly subsidies of Rs 700 to Rs 800 crore to FCI to satisfy its working capital needs. As a result, FCI may temporarily refrain from seeking additional short-term loans. Currently, the corporation’s reserves consist of 38.01 MT of rice and 36.65 MT of wheat, excluding 21 MT of rice pending collection from millers. This stockpile far exceeds the buffer requirement of 41.12 MT set for July 1.

To address discrepancies in cash flow and to furnish the corporation with short-term working capital, there exists a provision enabling FCI to access short-term loans of up to Rs 75,000 crore for a maximum duration of 90 days. The interest rates charged by the designated banks for these loans range from 6.79% to 7.39% per annum. Notably, over 70% of the central government’s food subsidy budget is designated for FCI for its procurement activities under minimum support price (MSP) operations, distributing food grains to states as part of the free ration scheme.

Officials report that the finance ministry has been timely in its food subsidy releases over the past couple of fiscal years, thereby reducing FCI’s dependence on short-term loans and cash credit limits. By the end of December in FY25, FCI’s total borrowings reached Rs 51,670 crore, with a significant portion—Rs 36,700 crore—attributed to bonds maturing in parts between 2028 and 2030.

Annually, FCI typically distributes about 36 to 38 MT of rice and 18 to 20 MT of wheat under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) free ration scheme. However, procurement levels have consistently exceeded 50 MT in recent years, leading to inventory accumulation. There are concerns that agricultural yields may decline by 25% due to climate change, with agencies purchasing over 76 MT of rice and wheat annually, while the requisite amount under the Pradhan Mantri Fasal Bima Yojana (PMFBY) is estimated at approximately 56 to 58 MT.

“The continual over-purchasing of grains relative to requirements is contributing to escalating economic costs, even with some stocks being sold off in the open market,” an official remarked. Consequently, FCI’s economic costs for rice and wheat are projected to rise in the 2025-26 fiscal year, with costs estimated at Rs 41.73/kg for rice and Rs 29.80/kg for wheat, up from Rs 40.42/kg and Rs 28.50/kg respectively in the previous year (2024-25).