New Delhi: The government on Wednesday approved Rs 45,000 crore loan to FCI out of National Small Savings Fund, while exempting most of the states and UTs from mandatory investment norms with regard to funds collected under the NSSF scheme.
The Cabinet decision to exempt states barring four, Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh, from NSSF investments from April 1, 2016 will help them raise cheaper funds from the market and reduce interest outgo.
The Cabinet meeting headed by Prime Minister Narendra Modi also approved providing one-time loan of Rs 45,000 crore from NSSF to FCI to meet its food subsidy requirements.
Servicing of interest and principal of debt is extended to FCI through the budget line of Department of Food and Public Distribution.
"The repayment obligation of the FCI in respect of NSSF Loans would be treated as the first charge on the food subsidy released to the FCI. In addition, FCI shall reduce the amount of its current Cash Credit Limit with the banking consortium to the extent of the NSSF loan amount," an official statement said.
A legally binding agreement will be signed between FCI, the Department of Food and Public Distribution and the Ministry of Finance on behalf of NSSF on the modalities for repayment of interest rate and principal and the restructuring of FCI debt will be made possible within 2-5 years.
According to the Cabinet decision, Arunachal Pradesh will be given loans to the tune of 100 per cent of NSSF collections within its territory, whereas Delhi, Kerala and Madhya Pradesh shall be provided 50 per cent of collections.
NSSF in the future shall, with the approval of Finance Minister, invest on items the expenditure of which is ultimately borne by Government of India and the repayment of principal and interest thereto would be borne from the Union budget, it said.
Once states are excluded from NSSF investments, the investible funds of NSSF with Government of India will increase.
The increased availability of the NSSF loan may reduce the GOI's market borrowings. The States will however, see an increase in market borrowings.
"Any increase in yields due to an increased demand for loanable funds in the market from Centre and States combined would be marginal. The reduction of FCI's borrowing cost equivalent to the extent of the interest differential will be reflected in the Gol's savings on the Food Subsidy Bill," he said.
Implementing the decision to exclude states from NSSF investments and extending the loan will entail no additional cost, it said, adding that instead a reduction in the food subsidy bill of the GOI is anticipated.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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