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‘Fudge Corp of India’ – How Modi govt uses FCI to keep fiscal deficit artificially low

Modi government has been transferring a part of its liabilities to FCI by giving it loans from NSSF and lowering the actual food subsidy in the budget.

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New Delhi: What does the Food Corporation of India (FCI) have to do with the country’s fiscal deficit?

Everything, if you go by how the Narendra Modi government has used the state-run behemoth to “artificially lower” the government’s liabilities and showcase impressive fiscal deficit numbers over the last few years.

The fudge, as some economists would label it, has been done by transferring a part of the government’s liabilities to the 55-year-old enterprise which was set up to ensure India’s food security.

India’s fiscal deficit over the last few years under the Modi government has been hotly debated with some economists doubting the official numbers in the face of slowing growth and rising expenditure. For instance, the fiscal deficit for 2018-19 was kept at 3.4 per cent of GDP and lowered to 3.3 per cent of GDP in 2019-20 despite the food subsidy bill rising due to the enactment of the National Food Security Act (NFSA).

The government managed to do this by providing a lower-than-required amount for food subsidy in the budget and then granting loans to FCI from the National Small Savings Fund (NSSF) to meet the corporation’s funding requirements.

Through this financial jugglery, the government managed to curtail the actual food subsidy outgo from the budget in 2018-19 to Rs 1 lakh crore, nearly at the same levels of 2017-18, despite increases in minimum support prices and the nationwide implementation of the Food Security Act.

In reality, the total food subsidy accounted directly in the budget should have been at least Rs 1.7 lakh crore in 2018-19 and Rs 1.6 lakh crore in 2017-18.

Instead, the government approved two loans each of Rs 65,000 crore in 2017-18 and 2018-19 from the NSSF to FCI to fund the subsidy.

For 2019-20, the budget has pegged the food subsidy at Rs 1.84 lakh crore.

Infographic: Arindam Mukherjee

ThePrint reached the FCI and the Ministry of Finance for comment but there was no response until the time of publishing this report.

How FCI earns its revenue

The Food Corporation of India is the government agency managing the procurement and distribution of foodgrains. Set up in 1965 under the Food Corporations Act, it is responsible for procurement of foodgrains at minimum support prices, storage and maintenance of adequate buffer stock and distribution through the public distribution system.

The central government fixes the minimum support price for procurement of foodgrains as well as their issue price at which they are supplied to the states. The difference in these two prices along with the distribution costs are reimbursed by the government to FCI in the form of food subsidy. Due to this, FCI is completely dependent on the central government and does not have any other modes of revenue.

To compensate for the shortfall between what the government budgets as food subsidy and the actual subsidy burden, the FCI has been borrowing from the NSSF every year. The outstanding principal loan of FCI from NSSF has ballooned to Rs 1.86 lakh crore as of March 2019, government data shows.

Lending to a state-run enterprise such as FCI was not the initial remit of NSSF either. The National Small Savings Fund was set up in 1999 to pool together all the money collected from small saving schemes. This includes public provident fund deposits, savings deposits and savings certificates such as the National Small Savings Certificate. The fund is administered by the Ministry of Finance.

Also read: CAG indicates real fiscal deficit for FY19, FY20 could be 1.5-2% points above govt estimate

‘Real story of fiscal deficit yet to emerge’

Ashok Gulati, one of India’s top agricultural economists and the Infosys Chair professor for agriculture at Indian Council for Research on International Economic Relations (ICRIER), said the need of the hour is transparency in budgeting.

“Food subsidy is a budgetary item and needs to be shown in the budget,” he told ThePrint.

“You cannot under-provision the subsidy and keep asking FCI to take loans from banks and small savings fund year after year. If all the dues to FCI are accounted for in the budget, the real story of the fiscal deficit will emerge,” said the ICRIER professor.

The Modi government has been increasingly using the NSSF to finance some of its obligations outside the budget to keep its fiscal deficit at manageable levels as indicated by the rising off-budget borrowings of state-owned enterprises.

FCI has the largest share among state-owned enterprises that have borrowed from NSSF.

Since FCI has no revenue stream of its own, the government has been granting fresh loans from NSSF to the company for the last couple of years to repay its annual installments for previous loans over and above the funding required for the food subsidy, thereby creating a vicious cycle.

For instance, an NSSF loan for Rs 65,000 crore at an interest rate of 8.40 per cent was sanctioned in 2017-18. Repayment of the first installment of an NSSF loan of Rs 70,000 crore taken in 2016-17, amounting to Rs 14,000 crore, was made during the year out of another NSSF loan sanctioned by the government, FCI’s annual report said.

Similarly, for repayment of principal installments of the NSSF loans taken in 2016-17 and 2017-18, which had now swelled to Rs 27,000 crore annually in 2018-19, the government approved a fresh NSSF loan just a day before the repayment date.

“For repayment of principal NSSF loan installment of Rs 27,000 crore due on 28.02.2019, GOI sanctioned another NSSF loan on 27.02.2019 for the rollover of principal installment of Rs 27,000 crore,” the annual report of the department of food and public distribution shows.

“Further, the GOI released NSSF loan of Rs 65,000 crore through book adjustment by converting food subsidy into loan.”

It is through this loan the government managed to bring down the actual food subsidy outgo to around Rs 1 lakh crore in 2018-19 as against the revised estimate of Rs 1.7 lakh crore.

‘Window dressing of food subsidy’

Siraj Hussain, a former agriculture secretary and a visiting senior fellow at ICRIER said, “Food Corporation of India has always depended on government support.”

“It provides wheat at Rs 2 per kg and rice at Rs 3 per kg to state governments and the difference between this price and the procurement price is paid through food subsidy by the central government. As the minimum support price increases every year, this food subsidy burden also increases.”

Hussain pointed out that during the United Progressive Alliance (UPA) period also ways and means advances were used to meet the shortfall in the budget of subsidy but the Modi government started the new practice of borrowing from NSSF.

Ways and means advance is a form of temporary credit that is paid back in the same financial year.

“Eventually, the entire amount of food subsidy has to come from the government. The window dressing of food subsidy has been going on for several years. Earlier, the amounts involved were lower but they have gone up substantially after enactment of NFSA which lowered the issue price of wheat and rice besides leading to higher procurement,” Hussain added.

Besides loans from NSSF, FCI also borrows from banks through cash credit limits and short-term loans. FCI’s cash credit limit — or advances from banks against stock holdings — was at Rs 9,495 crore in 2018-19.

FCI also availed short term loans from banks amounting to Rs 1.84 lakh crore as on 31 March 2019. The outstanding loans as of this date were at Rs 41,226 crore.

In addition, FCI raises funds through long-term bonds. The government also provides ways and means advance — Rs 50,000 crore was allotted to FCI under this for 2018-19.

Also read: This is how Modi govt managed to keep 2018-19 fiscal deficit ‘artificially low’


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  1. The Author of Article seems to have found a new thing. It is practice of every Govt in Rule since independence & they window dress their Income & Expenditure details,fiscal deficit etc. It is not a new thing in India. Earlier Govt might have used different methods in window dressing & BJP may be adopting some other methods.



  3. New government is elected to do things better and like government, I am surprised even we the readers talking about previous govt which has been punished not once but twice.

  4. Isn’t this practice first adopted by congress in the past few decades ?
    Good that media is bringing the focus now at last !
    These practices should be ended at the earliest

  5. That the GoI fudges its finances may be a given. But if it is doing so to meet the Food Security Act liabilities the right course would be to stop the food subsidy. Which journalist and opposition politician would not raise hell if such a step is ever taken?

    The food subsidy would go down if food were grown at lower cost. The great agri lobby and the Swadeshi Jagran Manch would raise hell and all the NGOs in this nation would howl that we are letting our national and natural agri practices down and letting Westerners overtake our agri. And then what happens to the MSP?
    Its a no win situation. Journos like this Remya Nair better be directed by the powers that are at ThePrint to write on something else.

  6. People who recommend issue of sovereign bonds in foreign currency ought to know that the government will have to open its accounts to forensic analysis and scrutiny by foreign entities. This is very basic fudge. When they find that what is shown officially as a responsible fiscal deficit of 3.4% is actually 5.8%, the enthusiasm to start writing out a check for $ 10 billion begins to wane. Lenders expect both interest to be paid on time and the principal to be redeemed on time. That comes from tax revenues generated by a growing economy. When potential foreign investors see the real economy, they begin to figure that there is fudge here as well. 2. The fiscal deficit is just a number, or a statistic. A sovereign government can ignore the FRBM Act, continue to be profligate. However, its impact on the real economy cannot be disguised or hidden. If food subsidy is costing two trillion a year, not the stated figure of one trillion, it has to be paid for. Whatever the accounting treatment, that volume of savings has to be sucked out of the economy, leaving that much less for private industry to tap into for investment. There are no masterstrokes in real life, just mounds and stacks of unpaid bills that have to be cleared. It is ordinary citizens who pick up the tab.

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