Sitharaman becomes the first Finance Minister to come clean on food subsidy⁠— a loophole that hid billions of dollars earlier

• The Food Corporation of India (FCI) funds its loss on account of food subsidy, with loans from the National Small Savings Fund, which is the money owed to the country’s small depositors.
• The debt is accounted as one owed by FCI, and not the government, even though FCI is fully owned by the government.
• This is one of the many ways in which India’s Finance Ministers have hid the real state of the country’s finances for years.
• However, Sitharaman has put a stop to this practice. “We have explained everything and we have not brushed anything under the carpet,” Sitharaman said.

The year of 2020 has tempered expectations so much that the Finance Minister is not hiding the bad news. She pegged the fiscal deficit at 9.5% of gross domestic product (GDP) for the coming year⁠— that’s how much India will fall short of revenue as opposed to increased expenditure.

For Aditi Nayar, principal economist at ratings agency ICRA, this would have come as a shock. She had estimated the deficit of 7.5% for the current financial year. Any other year, it would have created a furore but not this year. Not this time. Sensex has seen its best Budget day, with a 2,300 point rally, since 1997.


So what did Sitharaman clean up?

A government loan is a government loan. No matter which department takes it.

The Food Corporation of India (FCI) sells food grains to ration card holders at a nominal price that is much lower than what it pays the farmers. FCI funds this loss it incurs, on account of food subsidy, with loans from the National Small Savings Fund, which is the money owed to the country’s small depositors.

The debt is accounted as one owed by FCI, and not the government, even though FCI is fully owned by the government. This is one of the many ways in which India’s Finance Ministers have hid the real state of the country’s finances, for years.

However, Sitharaman has put a stop to this practice. “We have explained everything and we have not brushed anything under the carpet,” Sitharaman said. She became the first Finance Minister to disclose the loans that the government gives the FCI.

Food subsidy bill swells after One Nation One Ration Card scheme

In the last few years, the unpaid amounts to FCI also swelled so much that it became impossible to hide and roll over to the next year. In the year 2018-19 of Modi’s first term, the underpaid food subsidy bill to FCI swelled by 41% of the Budget estimate, to ₹69,394 crore.

After the Covid-19 pandemic, when the government supplied food grains to lockdown affected people for three months free-of-cost, the bill would have touched astronomical limits.

Added to that, the government also undertook a progressive move of One Nation, One Ration Card, the number of people who can and will collect the subsidy will also go up. In Sitharaman’s own words, this scheme has reached 690 million beneficiaries and counting.

Whether it’s good, bad or ugly, knowing that the real numbers are out there is reassuring.

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