Advent in technology and its dissemination, government’s priority to the sector and increasing responsibility due to ever increasing population, Indian agriculture has grown considerably over the years. With this development, increasing infrastructure requirements have always been concern of every government. Though the sector has always been given priority status, a remarkable change in the life of Indian peasant (especially small and marginal) is yet to witness. Many reasons can be assigned for the ill development of Indian farmers, but the most important which one can identify is farmer’s inability to make use of time advantage of its produce. Most of the farmers grow the crop, harvest and sells quickly without waiting for favourable market condition. Perhaps farmers knows that the prices of their produce goes up after a period of time, the urgency of cash need forces them to sell the produce at an unfavourable price.

Knowing this as well as promotion of scientific storage in the country, Government of India started Grameen Bhandaran Yojana, a special scheme for rural India. Over the years, the scheme resulted in building a storage capacity of more than 54.2 million MT in rural areas. Though the increase in storage capacity was much needed and still there is need of promoting warehousing in the country, parallel to this, Farmers Inclusionin storage should also be ensured.

Establishment of WDRA and changing Role of Banks

Banks are the major role player in fulfilling the objectives of the government by providing pledge loan to farmers against the produce stored in the godown/ warehouse. Even with continuous efforts by government, pledge loan against warehouse receipt has not been much popularized in India as the bankers are not confident with management and maintenance of the warehouses in the country, reported by Working Group on Warehousing under 10th Five Year Plan. With the aim of regulating and promoting the growth of warehousing in India and also to introduce the negotiability of warehouse receipts by launching Negotiable Warehouse Receipt System (NWRS), Warehousing Development and Regulatory Authority (WDRA) was established by enacting Warehousing (Development and Regulation) Act 2007. The Act came into force from 25th October 2010.For the purpose of building confidence of different stakeholders over warehouses, WDRA has defined norms for construction and operation of warehouses. The Warehouse Service Providers (WSPs) have to ensure compliance with the norms defined for accreditation of warehouses with the Authority.

Growth in pledge finance

In Indian agricultural scenario pledge finance has immense importance as most of the farmers hold small or medium sized land and thus lack financial backup. Most of these farmers do not possess any collateral which can be offered to financial institutions for availing a loan. Negotiable Warehouse Receipts are now being used as collateral. Thus in many Indian states, pledge finance has been growing in recent past. Among the 28 Indian states, only 12 have made headway for spreading pledge finance among farmers and other stakeholders dealing in agricultural commodities. Pledge finance has become popular in Andhra Pradesh, Haryana, Madhya Pradesh, Punjab and Rajasthan. On after establishment of WDRA, in most of the state growth in availing pledge finance has been observed except Tamil Nadu and Maharashtra. The highest growth was recorded in Gujarat (62%) followed by Orissa (49%) and Punjab (27%). The states of West Bengal, Rajasthan, Andhra Pradesh, Madhya Pradesh, Kerala and Haryana have witnessed a growth of less than 10 per cent.

This has been possible in these states with the concerted efforts put forth by agencies such as Central Warehousing Corporation (CWC), State Warehousing Corporation (SWC), State Agricultural Marketing Departments/ Boards, Collateral Management Service provider i.e. National Collateral Management Service Limited and National Bulk Handling Corporation (NBHC).

In the remaining states where the pledge finance scheme has been prevalent, but to gain momentum, awareness camp on mass scale is needed for reaching the producer growers.

Farmers Inclusion

In order to bring prosperity in the life of producer growers, it is the duty of government to ensure Farmers Inclusion in all agriculture related schemes. A primary investigation into the matter reveals that most of the farmers do not store the produce in warehouses as they need cash quickly after harvesting the crop. Lack of awareness about the pledge loan scheme and utilization of NWR is also among the reasons that the farmers are not landing to warehouses. The investigation also revealed that unwillingness of bankers due to risk involved in sanctioning loan against NWR has also become a hurdle in promotion of such scheme. The bankers though are aware about accreditation norms of WDRA, still hesitate as many risks associated with warehousing, which are to be mandatorily insured.

Risk Mitigation

The norms of accreditation by WDRA address the issue by including mandatory insurance by the WSPs. As per the direction of WDRA, the insurance policy covers a) Insurance of items stored b) Fire and Perils c) Earthquake, spontaneous combustion and d) Fidelity and personal indemnity. Though these are the major risk factors associated with warehouses, factors which are yet to include to increase bankers confidence are a) Insurance against price fluctuation b) Loss in quality of stored item due to climatic factors c) fidelity by temporary wagers and d)Bankruptcy of WSPs. Apart from this, another lacuna in the insurance coverage is that in cases of terrorism / burglary / misappropriation / theft etc. the insurance coverage is only 20% of the value of goods. If these risk factors are addressed properly, bankers may come in comfort zone, which will result in promotion of pledge finance and Farmers Inclusion in warehousing.

The writers are from the National Institute of Agricultural Marketing, Jaipur. The views are personal.

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