Business

Time for a strong warehousing infrastructure

Basic requirement is a central supervisory mechanism, preferably in the public-private format

FILE PHOTO

INADEQUATE FACILITY: Inside a Food Corporation of India warehouse

AS the commodity futures market crosses landmarks and milestones, one should not lose sight of the fact that certain fundamental issues that are important from a long-term perspective and are crucial for the growth to be sustainable, need to be addressed. One such issue that is not getting its due attention is the lack of adequate and quality warehousing infrastructure across the country.

While the policy planners, farmers, traders and also retailers will all recognise the age-old problem, it appears the issue has been put on the backburner. What is really perplexing is that even the emergence of futures trading has not had a rub off effect on the issue and the various stakeholders in the agricultural commodity value chain are far from understanding or acting upon its urgency.

However, the recent statement of the Union Minister of Consumer Affairs, Food and Public Distribution that the Government is looking at various enabling issues, including development of modern warehousing infrastructure across the country, to exploit the full potential of India's agricultural commodity sector is a welcome development.

Another move that is expected to give a fillip in addressing the crucial issue will be the Government's proposal to introduce a bill in Parliament soon on warehousing development and regulation. In combination these two moves will not only address a basic lacuna that has impeded the accelerated growth of agricultural commodities but also enable taking advantage of new innovative instruments made available following the introduction of futures trading.

The key question is about the best way to create and manage the proposed warehousing infrastructure. Going by past experience and global examples, what is required is a central mechanism to supervise the same, preferably in the public-private partnership format, under the aegis of the Central Warehouse (Development and Regulation) Act.

The proposed central body can undertake a survey to map the needs of farmers and traders in the specific commodity growing regions as per the trade demand and then chalk out a blueprint showing the number, location and type of warehouses to be created.

Once the public-private partnership format for creating the warehousing infrastructure is in place, it will be necessary to explore the larger involvement of the private sector in creating adequate warehouses in rural India. The time is ripe as large corporate houses are increasingly foraying into agricultural commodity business while urban centric large retail chains are looking at direct sourcing opportunities from farmers.

The new warehousing infrastructure being mulled can leverage the strength of technology and this will go a long way in helping farmers and traders in far-flung and remote areas of the country. Also, it should be made mandatory that all transactions at these warehouses are essentially through warehousing receipts as this will result in increased liquidity in rural areas, lower costs of financing, shorter and more efficient supply chains, enhanced rewards for grading and quality, and better price-risk management.

With warehousing infrastructure in place and warehousing receipts playing a critical role it is only logical that futures trading will find a new flavour. This essentially means the new generation commodity exchanges will also attract more trading and there is greater probability of increased physical delivery at the commodity exchanges. This will help the original dream behind the setting up of national multi-commodity exchanges being truly realised.

Kailash R Gupta

The author is Managing Director, National Multi Commodity Exchange of India. He can be reached at comex@icenet.net

© Copyright 2000 - 2009 The Hindu