Agri financing, warehousing key requirements for Indian agri economy; these two sectors may benefit farmers

January 26, 2021 12:52 PM

Agriculture inarguably is the mainstay of the Indian economy and the role of the agriculture sector in India’s economy cannot be understated.

Indian Agriculture, Agri financing, scientific warehousingLike Agriculture, the Agri Warehousing & Agri Financing sectors are also the key enabler of growth for India’s Agri-economy. Image: Reuters

By Sandeep Sabharwal

Agriculture inarguably is the mainstay of the Indian economy and the role of the agriculture sector in India’s economy cannot be understated. The sector has a massive indirect impact on allied sectors of the rural economy and the manufacturing & services segments of the national economy. Like Agriculture, the Agri Warehousing & Agri Financing sectors are also the key enabler of growth for India’s Agri-economy and the development and growth of these two sectors will ultimately benefit the farmers.

There are two pillars of post-harvest agriculture in India, the first is storage and the other one is the preservation and Agri Financing. India has two crop cycles Rabi and Kharif and the crops harvested in these cycles are consumed in the subsequent months of the entire year. This has a direct correlation to inflation, farmer income, and the Indian population’s nutrition cycle. During the storage period, both the above pillars are fundamental for the survival and upkeep of the crops.

In storage and preservation, the major challenges are regarding the perception of inadequate infrastructure and the Non-scientific storage solutions leading to Quality and Quantity loss of crops, hence economic loss both to the exchequer as well as the producer.

Here it is worth mentioning that as per GOI data, 10% of the crop valued at a staggering 1 lakh crore is supposedly getting wasted in India due to non-availability of storage. Had it been the case, the grain which India imports in huge quantities from a host of nations like Australia, Canada, Baltic region, etc. and which gets dumped at ports for months before reaching the consumer would have been the first to rot but surprisingly it does not loose on Quality or Quantity over the period of time, but at the same time data in the public domain suggests that Indian crops that are stored in static ground weather in CAP or Godown (Warehouses) loses 10% of the quantity. This assumption in itself is an anomaly as these losses are due to Non-scientific management and not due to inadequate storage facilities.

In an era of Artificial intelligence and technological advancement, it is disheartening to see that due to a wrong perception the problem is being wrongly identified and hence not being addressed. When processes like remote sensing and GPS locking is becoming widespread we are still ranting that we do not have the means of protecting our crops in warehouses (in whatever state and the stage they are) and hence we require new infrastructure while the solution lies in putting up scientific management companies and encouraging newer technologies which could manage the current infrastructure efficiently and help in addressing the issue of post-harvest losses. In India, if we could prevent this 10% of post-harvest losses that itself would be akin to a green revolution. In fact, a few years back FICCI had done a study on how using scientific techniques on existing infrastructure can curtail the post-harvest losses of 10% to only 0.5%.

Just like Warehousing, Agri financing is another integral part of the Agri value chain and from time immemorial this role has been played by various stakeholders like traders, millers, Arhtiyas, Banks, and more recently the NBFCs. The GOI had classified this as a priority sector lending area but here too there exists an anomaly. The government gives lending targets to the banks with a provision that in case the banks don’t meet those targets they had to subscribe to GOI securities to the tune of a deficit of target at very low yield. Despite this deterrent, there are times banks don’t meet their targets. So at one hand, we have the plight of Agri farmers, traders, etc. who are unable to receive finance and at the other, we had banks that could not meet lending targets.

To fill this gap arising out of the inability of banks to serve the niche areas, a lot of professional Agri services companies has diversified into NBFC but despite the availability of market and appetite these NBFC’s could not enhance their business due to low RoE that was not in commensuration with the expectations of the shareholders. This was because these NBFCs do not have leverage available at a lower cost, unlike banks that have CASA which gives them access to cheaper credit. These NBFCs are dependent on banks to provide them credit, which leads to a higher cost of capital which acts as a deterrent to further lending. So cheaper credit made available to such NBFCs just like credit is made available to NABARD, will go a long way in augmenting the Agri sector. The best-case scenario here would be the formation of an Agri Bank which lends to such firms with all due checks and balances, will go a long way in aiding the growth of the Agri financing NBFCs.

(Sandeep Sabharwal is CEO, SLCM Group. Views expressed are the author’s own.)

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