India has suffered from a perennial shortage of warehousing capacity. This year, too, post-Rabi harvest season, the warehousing capacity would be falling short of storage requirements. Though the government has been under constant pressure to increase the warehousing capacity, its efforts have not been commensurate with the target.
The current capacity available in public, co-operatives and private sectors, taken together, is about 108.75 million metric tonnes (MT). The requirement as per estimates is an additional 35 million MTs of warehousing capacity within the next 5 to 10 years. What ails the warehousing sector? Why is there capacity shortage? The warehousing problems and trends were highlighted in a recent seminar organised by CII in New Delhi.
The private sector initiative into modernised warehousing has been sporadic and small in numbers. Low penetration of IT and best practices, lack of clarity in policies relating to warehousing and logistics, limited training facilities for manpower, and restrictions on loans to warehouses have held the private sector back. The Warehousing (Development and Regulation) Act, 2007, which became effective in October 2010, sought to develop and regulate warehouses and allied functions. The negotiable warehouse receipt system was applicable for agricultural and non-agricultural products. Currently, 115 agricultural commodities have been notified for issuance of negotiable warehouse receipts.
Till December 2011, 404 applications were received for registered warehouses, from different states. Only 189 could be registered with the Warehousing Development and Regulatory Authority?less than 50%. Out of 11 states that have registered warehouses, 4 states have less than 5 registered warehouses, which include Orissa and Himachal Pradesh, who have only 1. Out of 113 applications received from private parties for registration of negotiable warehouse receipts scheme, this year, only 18 could be registered.
The low figures have been attributed to the applicants (warehouses) not conforming to BIS (Bureau of Indian Standards), FCI (Food Corporation of India) and CWC (Central Warehousing Corporation) specifications. Many of these structures were mere godowns rather than value-added warehouses. There was no clear lease deed, ownership or rental agreements. They have inadequate infrastructure facilities such as security, fire fighting, and boundary walls. Besides, most of private sector warehousing capacities were of poor quality, small and fragmented. Many requests for registration could not be accommodated because the private parties did not have adequately trained manpower to manage warehouses, which has been a serious drawback in the infrastructure industry as a whole.
At present, among the functioning warehouses, about 50% are still handled by the unorganised sector and in balance, the majority are managed by the government. Land acquisition continues to impede progress. It is not so much the pricing of the land as the uncertainty in the land acquisition process. The procedures for conversion of land use are to be simplified, which, at present, are complex with different states having different rules. Unavailability of land as well as high, rising cost of land in urban, semi-urban and even rural areas has been a deterrent to investors.
Connectivity to some of the warehouses in the states remains a major problem; in some states the warehouses can only be reached by traversing small internal roads that are unsuitable to carry heavy truck loads. Storing of grains on plinths in the open is still common in many states.
According to business consultants Quant Partnerships, an integrated approach to town planning to include warehousing as one of the aspects is missing. The health of the warehousing sector will also depend on the quality of connectivity infrastructure like roads, highways, rail links and communication network.
Warehousing is a capital intensive sector and the gestation period is long. The government has initiated a number of soft loan schemes for the development of warehousing capacity. The payback period is estimated to be 10 years?a long interval of time for a medium level businessman to invest his money in, given that there is no assurance of sustaining captive business.
From the finance side, public funds for construction of warehouses have not been adequate. Tax incentives and other financial benefits have not been encouraging enough, the trade feels.
The negotiable warehouse receipt can become a prime tool of trade, finance and banking in rural areas. By endorsing the receipt, ownership of the cargo can be transferred to the endorsee. The NWR system will boost warehousing business since it would increase liquidity in rural areas, lower the cost of financing, help shorter and more efficient supply chains and better price risk management.
The registered warehouses authorised to issue negotiable warehouse receipts will have the advantage of captive business, since the farmers who store their goods in registered warehouses will enjoy several benefits such as scientific warehousing, avoidance of distress sale owing to glut in the market, higher quantitative and qualitative standards?thereby enabling the farmers to fetch better prices for their produce, better lending conditions of loans from the banks, and the safety of insurance.
The CST era dictated the number of warehouses in the country. However post-GST, there would be consolidation and rationalisation in the use of warehouses: 12 to15 hub locations, each serving a catchment area of a radius of 100 to 150 kilometres, are expected to come up. Each hub would be governed by such parameters as population density, consumption pattern, location of gateway ports for export and import of cargo, and proximity to projects like the dedicated freight corridor and the golden quadrilateral.
There are a number of schemes to promote warehousing for the first time. The Rural Infrastructure Development Fund (RIDF) schemes opened for the private sector with an allocation of R2,000 crore by the government are exclusively for setting up warehousing facilities in the country (this has been enhanced to R5,000 crore in the current budget).
The Public Entrepreneurs Godown (PEG) 2008 Scheme with a ten year business guarantee from the FCI would lessen the uncertainty of the continuation of business.
It is time that we put an end to this colossal and sinful waste?something that we as a developing nation can ill afford. Photographs of grains rotting in the sun or exposed to vermin are a damning statement of ineffectual policies and the unwillingness to correct course. The various stakeholders are justifiably apprehensive of their investments in this sector. With increased allocation of funds towards warehousing infrastructure and the new crop of measures, we may perhaps yet see the end of rotting food grains.
The author is a freelance maritime writer