Bulk of this fall can be attributed to cost-saving measures undertaken by the Food Corporation of India in food management operations.

"The drop in food subsidy could have exceeded the Rs 2,000 (Rs 20 billion) mark but for the expansion of the Antyodaya Anna Yojna under which wheat and rice are given to poor households at Rs 2 and Rs 3 a kg, respectively," a food ministry official told Business Standard.

The 2004-05 Budget had set aside Rs 25,800 (Rs 258 billion) for food subsidy in the current fiscal year, against the actual outgo of Rs 25,160 (Rs 251.60 billion) in 2003-04.

However, the actual subsidy figure for the current year might turn out to be over Rs 1,000 lower than the last year's revised Budget estimate, he said.

Till mid-January, the actual food subsidy outgo was slightly less than Rs 22,000 (Rs 220 billion). The FCI has taken several measures during the year to save on storage, transportation and distribution costs of foodgrains.

It also launched a major initiative in arranging cheaper finance for its food operations by renegotiating interest rates with the consortium of banks lending food credit to it.

Besides, it has begun borrowing money from the market at a relatively cheaper cost.

The FCI has managed to reduce its staff strength by nearly 7,000 through the voluntary retirement scheme, which has been availed of by many senior executives.

According to rough estimates, the FCI is likely to save around Rs 700 (Rs 7 billion) on debt servicing alone.

Besides, it expects to save around Rs 150 (Rs 1.5 billion) on the storage and carrying cost of food stocks and about Rs 100 (Rs 1 billion) on freight and transportation. There could be savings on several other counts as well, the ministry official said.

The FCI's negotiations with the State Bank of [Get Quote] India-led consortium of banks resulted in the reduction of interest rates on food credit from 10.95 per cent earlier to 9.1 per cent now.

This rate is slated to fall further to 8.15 per cent by August next. Besides, the FCI is also raising about Rs 5,000 (Rs 50 billion) this fiscal year from the market by issuing bonds.

The average interest for these bonds works out to around 7.12 per cent, much lower than that charged by the banks consortium.

Some of the banks have also applied for government-guaranteed FCI bonds. To save on transportation costs, the FCI now keeps stock worth about two months requirement in each state.

This obviates the need for transporting grains from Punjab and Haryana every time the need for more supplies arise in a state.

Moreover, the FCI has started allocating grains to deficit states from states like Madhya Pradesh, Uttar Pradesh and others that are procuring foodgrains under the decentralised procurement scheme. This helps in reducing the transportation lead.

Dispersal of stocks to destinations outside Punjab and Haryana has resulted in better utilisation of the available warehousing capacity, leading to saving on storage expenses.

The FCI is now exploring the possibility of paying the cost of the procured grains directly to farmers in those states, which are participating in the decentralised procurement operation.

This will reduce the states' financial burden on raising food credit which ultimately is reimbursed by the Centre.