10.

The Potential and Scope

for Negotiable Warehouse
Receipts in India
Dinesh Rai

Abstract
The Paper describes the current status of agriculture warehousing in the country. It points to the need to develop
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the Warehousing (Development & Regulation) Act, 2007 and the introduction of negotiable warehousing receipts
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The Paper describes the various PPP initiatives taken by the Central Government to develop modern warehousing
infrastructure under the National Policy on Handling, Transportation and Storage of Foodgrains 2000, as well
as under the Private Entrepreneurs Godown Scheme, 2008. The Paper concludes that with these initiatives there
would be rapid growth of warehousing infrastructure in the country.

Introduction
Warehousing plays a very vital role in promoting agriculture marketing, rural banking and
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during the harvest season and maintain uninterrupted supply of agricultural commodities
during the off season. Hence, it solves the problems of glut and scarcity, which are the
usual problems in agricultural marketing. Though warehousing is an independent economic
activity, yet it is closely linked with production, consumption and trade. Development of
agro processing and agricultural marketing needs a strong warehousing system. Warehousing
is the most important auxiliary service for development of trade and commerce. There has
been lack of sustained investment in the warehousing sector. Private sector initiatives have
been small and sporadic in the warehousing sector. Besides, most of the private sector
warehousing capacities available in the country are of poor quality, small, fragmented and
do not meet the requisite infrastructure standards.
160 India Commodity Year Book 2012

Current Status of Warehousing Industry in India

The warehousing capacity available in India, in public, cooperative and private sector is
about 108.75 million MT. The warehousing capacity available in India, in public, cooperative
and private sector is as follows:
S. No. Name of the Organization /Sector Storage Capacity in Million MT
1. Food Corporation of India (FCI) 32.05
2. Central Warehousing Corporation (CWC) 10.07
3. State Warehousing Corporations (SWCs) 21.29
4. State Civil Supplies 11.30
5. Cooperative Sector 15.07
6. Private Sector 18.97
Total 108.75

The storage capacity available with the FCI and a part of warehousing capacity available
with the CWC and the SWCs is used for the storage of foodgrains procured by the Government
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cater to the procured stocks. As a result, a substantial quantity of foodgrains is stored in
Covered and Plinth (CAP).

Need for Modern Warehousing in India

Due to record levels of procurement in the last four years, several States have been facing
a problem of covered storage capacity. In the Rabi Marketing Season (RMS) 2011–12, the
Food Corporation of India (FCI) has procured more than 280.31 lakh MT of wheat which
is around 30 lakh MT higher than the earlier record procurement. As on 01.06.2011, the
FCI held 65.5 million MT of wheat and rice stock which is the highest level, ever achieved.
This is against buffer and strategic norms of 319 lakh MT of foodgrains.
Since the year 2007–08, the procurement of foodgrains (Wheat and Rice) by the
Government agencies for Central Pool has increased substantially. The procurement of these
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(Fig. in lakh MT)
RMS 2007-08 RMS 2008-9 RMS 2009-10 RMS 2010-11 RMS 2011-12
111.28 226.89 253.82 225.25 280.31 (14.7.2011)

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(Fig. in lakh MT)
KMS 2006-07 KMS 2007-08 KMS 2008-09 KMS 2009-10 KMS 20010-11
251.07 284.91 336.83 320.00 320.79*(as on 14.7.2011)
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Future of Supply Chain Management in Agri Sector 161

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the country is given below:
(Fig. in Million MT)
Year Production (Wheat and Rice) Procurement (Wheat and Rice)
2006–07 169.2 36.2
2007–08 175.3 51.4
2008–09 179.9 59.1
2009–10 169.8 54.5
2010–11 178.3 59.2

Therefore, availability and augmentation of storage capacity is one of the main priorities
of the Government of India. As per estimates, additional 35 million MT warehousing capacity
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capacity to be created in the country to store and preserve the foodgrains procured for the
Central Pool.

Introduction of Negotiable Warehouse Receipt (WHR) and its Impact on

Agri-business
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warehouse receipt system in the country. The Warehousing (Development and Regulation)
Act, 2007 has been made effective from 25th October, 2010. As per the provisions of the Act,
the Warehousing Development and Regulatory Authority has been set up by the Government
from 26th October, 2010. The negotiable warehouse receipt system has been formally launched
by Prof. K. V. Thomas, Hon’ble Minister (Independent Charge), for Consumer Affairs, Food
and Public Distribution on 26.04.2011 at New Delhi.
The main objectives of the Warehousing (Development and Regulation) Act, 2007 are to
make provisions for the development and regulation of warehouses, negotiability of warehouse
receipts, establishment of a Warehousing Development and Regulatory Authority (WDRA)
and related matters. The Negotiable Warehouse Receipts (NWRs) issued by the warehouses
registered under this Act would help farmers to seek loans from banks against NWRs to
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exchanges as well as consumers.

Salient Features of Warehousing (Development and Regulation) Act, 2007

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162 India Commodity Year Book 2012

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Regulation of Warehousing Business

No person shall commence or carry on the business of warehousing for issuing negotiable
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Requirement for Registration of Warehouses

(i) The warehouses should be constructed as per Bureau of Indian Standards (BIS)/
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(ii) The warehouses should be storage worthy for different goods to be stored.
(iii) The warehouses should be equipped with all necessary equipment for weighing,
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for its organization.
(v) The warehouses should have adequate trained staff with expertise and knowledge
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(vi) Warehouses should have adequate security arrangements.
(vii) Any other requirement prescribed by the Authority from time to time.

Advantages of Registered Warehouses with the Authority

Registered Warehouses
(a) may Issue Negotiable Warehouse Receipts on which farmers/depositors may be
able to seek loan easily from banks.
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(c) will have trained warehousemen.
(d) would indicate the quality standards/grades of the commodities stored in their
warehouses on the Negotiable Warehouse Receipt.
For capacity building in the warehousing sector, the Authority will arrange training
of warehousemen and other stakeholders of the warehousing sector through some expert
institutions like NIAM, Jaipur and CWC. It will also initiate other developmental plan to
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Future of Supply Chain Management in Agri Sector 163

Advantages of Negotiable Warehouse Receipts over Non-negotiable WHR

With the introduction of negotiable warehouse receipts system, there would be following
advantages:
1. Increased liquidity in rural areas for farmers.
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5. Enhanced rewards for grading and quality.
6. Better price risk management by farmers.
7. Higher returns to farmers and better services (quality) to the consumers.
8. Avoidance of distress sale of agriculture produce by farmers during the peak
marketing season.
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of depositors and banks, as there was fear of not being able to recover the loans in events,
such as fraud, or mis-management on behalf of the warehouse or insolvency of depositor.
The available legal remedies were also time consuming and inadequate. Further, the format
of warehouse receipts used in the country was not uniform. Hence, there were impediments
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depositors of goods.
Therefore, it was envisaged to establish a negotiable warehouse receipt system for
all commodities including agricultural commodities. On the one hand, it will make
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the country. On the other, it will allow banks to improve the quality of their lending
portfolio and enhance their interest in lending in respect of goods deposited by farmers
in registered warehouses.

Learning for India from International Negotiable Warehouse Receipts

The Core Group setup by the Government of India in 2004 for drafting the Warehousing
(Development and Regulation) Bill had studied and examined the negotiable warehouse
systems prevailing in other countries. In the US Warehousing Act, 1916, the licensed
warehouses have to meet certain basic requirements in terms of physical facilities, capital
adequacy, liquidity, managerial qualities and insurance coverage. The same criteria have
been followed while drafting the Warehousing Bill. The provision for accreditation
agencies has been made in the Act to verify these basic requirements. The WDRA is
also considering establishing a system of independent inspection of warehouses on the
lines of the US system. The important features of NWR in Canada have also been
incorporated in the Warehousing Act in India.
164 India Commodity Year Book 2012

Scope for Private and Public Partnership in the Warehousing Sector:

National Policy on Handling, Storage and Transportation of Foodgrains
In order to reduce storage and transit losses of foodgrains at the farm and commercial level,
to modernise the system of handling, storage and transportation of foodgrains procured
by the Food Corporation of India (FCI) and to bring in additionality of resources through
private sector participation, the Government of India had approved a National Policy on
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India dated 15th July 2000.

The Main Objectives of the Policy Were

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total foodgrains production is retained and consumed and also to encourage the
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procured by the Food Corporation of India (FCI).
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and foreign, to build and operate infrastructure for introduction of bulk handling,
storage and transportation of foodgrains in the country.

Facilities for Central Pool Stocks

It was envisaged in the Policy that:
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with silos of large capacity for wheat along with testing facilities for quality control
would be created at about 20 identical central locations in producing and consuming
areas as well as a few port towns.
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created and maintained in private sector under the overall co-ordination of the FCI.
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in consultation with the Ministry of Railways.
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the circuits where these wagons would ply.

Private Sector Participation

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infrastructure for the integrated bulk handing, storage and transportation through –
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etc.
Future of Supply Chain Management in Agri Sector 165

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The integrated bulk grain handling, storage and transportation facilities to the tune of
5.5 lakh MT have been created through private sector participation at the following locations:

Circuit 1 Circuit 2
Location Storage Size (MT) Location Storage Size (MT)
Base Depot Moga 200,000 Base Depot Kaithal 200,000
Field Depots Chennai 25,000 Field Depots Navi Mumbai 50,000
Coiambatore 25,000 Hooghly 25,000
Bangalore 25,000

The project had been implemented in 36 months and it had become operational at all
the locations and special wagons have also been procured by the Developer-cum-Operator
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Private Entrepreneurs Godown (PEG), 2008 Scheme

To meet the situation arising out of high procurement level of wheat and rice as a result of
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a scheme for creation of additional storage capacity for foodgrains through private sector
participation in 2008. The scheme is known as Private Entrepreneurs Godowns (PEG–2008).
A state wise mapping of existing capacities and analysis of additional requirements was
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of the Food Corporation of India (FCI). Under the scheme, the Food Corporation of India would
now give a business guarantee of ten years for assured hiring. A capacity of about 15.2 million
MT is proposed to be created in 19 States under the Private Entrepreneurs Godown (PEG)
scheme through private sector participation and Central and State Warehousing Corporations.
To make the scheme more attractive for private entrepreneurs, the guarantee period was
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for hiring of godowns has been revised from Rs. 3.80 per quintal per month to Rs. 4.78 per
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decide higher rates by recording reasons in writing.
The Planning Commission is also keen for augmentation of storage facilities for the storage
of foodgrains through Public Private Partnership (PPP). There is a proposal for setting up
modern silos with a total capacity of 2.0 million MT in PPP mode. All these efforts will be
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the capital expenditure on construction of silos, the private entrepreneurs would be eligible
for Viability Gap Funding (VGF) under the existing VGF scheme which allows grants of
upto 20 per cent of capital cost on the basis of competitive bidding. The FCI would provide
166 India Commodity Year Book 2012

an additional VGF of upto 20 per cent of capital costs. For storage of wheat in these silos,
the developer will be entitled to receive a recurring service charge provided he meets the
required performance and maintenance standards.

Challenges Faced by Financing Institutions/Banks

Warehouse receipts are documents issued by warehouses to depositors against the commodities
deposited in the warehouses. The warehouse receipts may be either non-negotiable or
negotiable. The negotiable warehouse receipt may be transferred either by endorsement or
by physical delivery. Any one, either the original depositor of the goods or the holder of
NWR in due course (transferee) can claim the commodities from the warehouse.
The Negotiable Warehouse Receipts, backed by the underlying commodities, are an
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producers and commercial entities can convert inventories of agricultural raw materials or
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Warehousing (Development and Regulation) Act, 2007, the warehouse receipts have become
fully negotiable instruments, they can be traded, sold, swapped, used as collateral to support
borrowing, or accepted for physical delivery. The NWRs issued by the warehouses registered
with the WDRA provide secure collateral for banks by assuring holders of the existence and
quality of agricultural commodities deposited in the warehouses.
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through NWRs issued by registered warehouses will lead to an increase in the availability
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agriculture sector.

Size of Negotiable Warehouse Receipt Market

As per a recent study by Union Bank of India, the market potential for warehouse receipt
¿QDQFLQJ LQ ,QGLD ZDV HVWLPDWHG DW Rs. 19,000 crore, the commodity wise details being as
follows:

S. No. Name of the Commodity Market Value in Rs. Crore

1. Wheat 5109
2. Paddy 4698
3. Potato 1394
4. Soybean 1284
5. Groundnut 1121
6. Mustard 947
7. Gram 932
Future of Supply Chain Management in Agri Sector 167

With the emergence of NWR under WDRA, commodities volume is likely to experience
a phenomenal growth. It is also expected that with the introduction of Electronic Warehouse
Receipt (EWR) system in the country linked with spot exchanges, the market size of NWR
will further increase several times.

The Way Ahead–Future Growth Potential

The Ministry of Finance has provided for Rs. 2000 crore under RIDF for 2011–12 as
additional allocation dedicated to creation of warehousing infrastructure in the public sector
and cooperatives. The Department of Economic Affairs, Ministry of Finance, Government
RI,QGLDYLGHLWVQRWL¿FDWLRQGDWHGth March, 2011 has included “capital investment in the
creation of modern storage capacity including cold chains and post-harvest storage” in the
list of infrastructures in the Scheme for Financial Support including Viable Gap Funding
under Public Private Partnerships.
The WDRA plans to integrate the Primary Agriculture Credit Societies’ (PACS) warehouses
under the negotiable warehouse receipt system so that the small and marginal farmers may
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The WDRA has plans to include temperature controlled warehouses in the purview of
the Warehousing Act jointly with National Horticulture Board so that the farmers growing
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NWRs issued by the cold storage/temperature controlled warehouses.
It is expected that the above measures will lead to rapid growth of the warehousing
sector in the country and more private investment in warehouses.