Food security: Its efficient management is a win for India

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₹4.63 trillion. The latest step in this direction, taken in February 2024, has been an enhancement of the authorized working capital of FCI from ₹10,000 crore to ₹21,000 crore. Traditionally, these operations have been financed through food credit.

There has been a separate arrangement for pre-emptive lending to FCI and food-procuring state governments regulated by the Reserve Bank of India (RBI). The entire volume of food credit is extended by a consortium of banks led by State Bank of India (SBI). In the past, this consortium charged higher interest rates due to uncertainty of repayment, because credit extended could be repaid only once the subsidy was disbursed after liquidation of foodgrain stock held in the central pool.

The extent of food credit extended by the consortium reduced credit available for other sectors of the economy, classified as ‘non-food credit.’ Since the establishment of FCI in 1965, food credit had been consuming a significant share of the total credit deployed in the Indian economy. According to Economic Survey reports of 2000-01 and 2001-02, it ranged from 15% to 20% until the end of year 2000, and had risen to 37.7% during April to October 2001, due to an extended period of stock holding. From 2001-02 onwards, the share of food credit started declining, due to quicker liquidation of stock.

It declined further with FCI’s diversification of fund sources, such as government guaranteed bonds, National Small Savings Scheme (NSS) and ways-and-means advances, which was done to reduce interest costs. Thus, the share of food credit has been on a decline over the past two decades. However, from the year 2010-11 onwards, the central government’s subsidy disbursement to FCI had become sticky.