The rating agency expects the pandemic to have a positive impact on the cash flow from operations (CFO) of state procurement agencies (SPAs) in FY21, due to higher offtake from the Food Corporation of India (FCI) in response to the various welfare schemes announced by the Centre.
This will result in the liquidation of SPAs’ unsold inventory and debtors, the agency said on Friday.
“SPAs procure the stock of wheat and paddy from designated mandis and supply them to FCI for building the central pool,” the rating agency said in a statement.
Thr central pool stock since then has increased at a rapid pace, growing 22 per cent yoy in FY18, again by 22 per cent yoy in FY19 and 23 per cent yoy in FY20 to 56.9 mmt.
As a result, the substantial increase in the central pool stock has had a negative impact of the liquidity of SPAs.
“Most SPAs have recorded negative CFO over FY18-FY20 due to a build-up of inventory at their end, as the offtake from FCI slowed down due to its own burgeoning stock,” the statement said.
Besides, SPAs had recorded revenue against unsold inventory in the form of storage charges and associated interest income, the receivable claims from the FCI have been mounting, thereby increasing the liquidity pressure.
“Regular enhancements in working capital limits have accordingly supported the liquidity position of SPAs during these years.”
In FY21, the rating agency believes that SPA’s CFO position could turn positive, despite the expectation of record harvests in both wheat and rice.
“In view of the Covid-19 pandemic and the resultant lockdown, the Indian government has announced various welfare schemes to alleviate the stress faced by the poor,” the statement said.
Under the PM Garib Kalyan Ann Yojana, free distribution of 5 kg of food grains and 1 kg of pulses per household for the next three months was announced in March 2020 for the 80 crore beneficiaries covered under the National Food Security Act.
This scheme has now been extended up to end-November 2020.
Furthermore, the existing limit of 5 kg per person per month of food grains at subsidised rates for those covered under the scheme had been hiked to 7 kg per person per month.
According to the rating agency, all such welfare schemes are being routed through FCI.
These initiatives will will free-up the storage space available with the FCI, thereby making them ready to accept fresh produce coming in from various SPAs.
“This would reduce the inventory holding and consequent debtors at SPAs and accordingly facilitate the liquidity through CFO generation,” the statement added.