Given the rising importance of commodities futures in the country--the Reserve Bank is giving finishing touches for permitting banks to trade in goldfutures--representatives of UNCTAD and World Bank felt that it was time to introduce WR system in the country. A section of cash-flush banks feel financing through WRs could be a viable lending proposition.

During the first day's two technical sessions, the list of speakers included names like Business Intelligence Unit, COO, G Ramachandran, Natural Resources Institute (UK) Duncan Burnett; Geneva-based SGS Christian A Jeorg; ITC's (international business division Hyderabad) S Sivakumar; Cotton Technology Mission's advisor MB Lal; Rabo India Finance managing director Hans Hannaart and The Hindu Business Line's commodities editor G Chandrashekhar.

Food and Consumer Affairs secretary, K Srinivasan cautioned the participants of the workshop in particular and the trading and financing community in general on the introduction of WR system in the country. Said Srinivasan: "WR may be a good financial instrument. However, it is important that fool-proof systems are in place to prevent unscrupluous elements takingundue advantage of the system.

Towards the end of the first technical session, Madhoo Pavaskar, an independent consulting economist (who has been as advisor on many a agro-related panels set up by the World Bank) raised couple of important issues. Among others, he said these are important to be debated before even thinking of introducing the WR system in the country.

First, whether the government will be ready to lift the storage constraints on vital commodities; second, is the trading community as a whole prepared to introduce the vital grading system for smooth conducting of futures trading and therefore, the commencement of WR system in the country; third, are the commodity exchanges prepared to change their administrative set up to improve the overall conditions in futures trading.

Other related issues like the state of existing warehouses in the country, how can these be upgraded, what funds and administrative set up would be required to improve the conditions of these existing warehouses and thelike too were undebated.

These and other related issues were not discussed by the panel members of the two technical sessions on the first day. Neither were they listed to be discussed on the second day.

As the theme of the workshop indicated, the concentration was on the issue of financing activities using the WR system. Not the fundamental issues that are required before the WR system could be introduced.

Said the RBI executive director Khizer Ahmed: Given the system of financing activities in the country, it should not be difficult for banks to finance WRs. However, there needs to be standardised warehouses with credibility and fool proof system have to be in place to avoid problems that may arise in absence of these. We'll not be lagging behind to finance the WRs but it could be only after foolproof systems and creditable, standardised warehouses are in place.

Said the president of a commodity exchange: We don't see the early emergence of financing and trading of the WRs in the country given theoverall state of comexes in the country. None of these exchanges, dealing in vital commodities, are interested to set up their own warehouses like those set up by the London Metal Exchange which has its approved warehouses set up across the world.

G Ramachandra, COO, BIU said: "Physical trade in agricultural produce is cumbersome. The use of agricultural commodities in their physical state as collateral is obsivously much more cumbersome. These lead to higher transactions cost and higher cost of credit. Warehouse receipts eliminate several dimensions of such costs...Banks would be more willing to finance an asset, which is legally valid and exercisable in case of default...Commodity warehouses and a national futures market place would enable banks to make better assessment of risk this in turn would result in better credit flows."Citing Planning Commission's agri-credit estimates, Business Line's G Chandrashekhar said: During the current ninth 5-Year Plan, an estimated Rs 2,29,750 crore ($60 billion) worthof agri-credit will be required in the country. This is an important issue to be addressed, and to a certain extent, WR system can help garner the required credit.

Also, the WR system will help illeterate farmers to become as sharp as the canny market intermediaries who take them for a ride because of their illetracy. With proper market information system, the farmers too can wait for better prices before offloading their produce. But for this to happen, the the Agri-Business Consortium (having government's backing) and operational in the last three years has a big role to play in structuring the WR systems in the country. There are more than 7,000 spot Agro Produce Marketing Committee (APMC) managed marketing yards which too have a big role to play in agri-marketing to build the WR and storage facilities for farmers and disseminate the vital marketing information.

Said Rabo India Finace managing director Hans Hannaart: WR system helps improve the overall credit flow inthe country. While it avoidsduplication of credit it also helps in curbing the speculative instincts of the trading community.

Lastly, EICA president Suresh Kotak said: "A viable WR based financing system is a msut for emerging markets. Agro economies like India, can benefit from it enormously. The commodity movement that is the logistics chain will benefit from the wide use of WR. However, there will have to be improvements in market transparency, legal security of contracting and price discovery mechanism."