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FCI could have saved Rs36,000 crore if subsidy came on time: CAG

LiveMint logoLiveMint 04-08-2017 PTI

New Delhi: State-run FCI would have saved Rs35,701.81 crore interest burden during 2011-16 had the government released food subsidy on time, the CAG said on Friday and suggested that full allocation be made to the agency. The auditor also suggested the Food Corporation of India (FCI) to approach a consortium through the Food Ministry for allowing it to utilise short-term loan before exhausting the cash credit limit.

In the latest report tabled in Parliament, the Comptroller and Auditor General (CAG) further suggested the FCI to get permission again to obtain guarantee for issue of bonds so as to gain access to cheaper source of funds. The CAG examined FCI’s debt management during 2011-16 as well as labour issues and the PEG scheme progress in Punjab.

“On an average, only 67% of subsidy claimed was released by the Government of India over the last five years because of which FCI had to borrow from other costlier means of finance resulting in heavy interest burden of Rs35,701.81 crore during 2011-16,” the CAG said in the report. FCI had claimed a subsidy of Rs4,45,809.59 crore during 2011-16. Out of which, it received only Rs3,00,675.88 crore from the ministry.

But the agency’s foodgrain procurement, distribution and other administrative costs had amounted to Rs6,33,788 crore in the review period. “Had the government paid the full amount of subsidy within the same financial year, there would not have been any need to take money from market sources and thus additional interest could have been saved. This is a completely avoidable payment of interest,” CAG Principal Director and Auditor Ashutosh Sharma told reporters.

However, last year’s situation was better than previous years. Reimbursement during last year was slightly better, he said, adding that the finance ministry releases less funds towards subsidy because they have competing priorities. The government’s food subsidy would have been less by about Rs35,700 crore over the past five years if it had given money in time to FCI rather than paying interest on market loans, he added.

In the report, the CAG said the FCI had to resort to costlier source of financing due to restrictions imposed by consortium of banks for utilising short term loans and lack of permission by the government to raise bonds. FCI was paying interest between 10.01% and 12% on cash credit, resulting in extra burden on government exchequer, it said.

The auditor said that the short and delayed release of subsidy created a vicious cycle whereby funds taken on interest for working capital further increase the claimable subsidy eventually leading to “avoidable” increase in the overall food subsidy burden, Further, there was pendency of recovery of Rs2,897.17 crore of long outstanding dues from some central and state PSUs and state governments, it added.

“Moreoever, the risk management policy of FCI also did not sufficiently address the complex financial needs of the corporation,” the CAG noted.

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