Budget 2020: Warehousing is a great idea, but the linkages need to be fixed to make it work

In her Budget speech, Finance Minister Nirmala Sitharaman said that NABARD will undertake an exercise to map and geo‐tag the warehouses in the country. In addition, the government plans to create warehousing in line with Warehouse Development and Regulatory Authority (WDRA) norms. The government would also provide viability gap funding for setting up such efficient warehouses at the block/taluk level.

"Food Corporation of India (FCI) and Central Warehousing Corporation (CWC) shall undertake such warehouse building on their land too.
As a backward linkage, a village storage scheme is proposed to be run by the self-help groups (SHGs). This will provide farmers a good holding capacity and reduce their logistics cost.," Sitharaman said.

Warehousing is a great idea. So is the issue of building warehouses as provided for under the WDRA (Warehousing Development and Regulation Act). More about this can be found here. The WDRA was enacted in 2007. Then it was forgotten. It got notified only on October 25, 2010. Since then it has been largely dysfunctional. Is this being resurrected now?

Second, a problem with warehouses is that they come under the WDRA, the state governments, and even talukas at the village level. The government has not yet created laws that allow the WDRA certification to override clearances by local authorities.

Third, the government has not yet come up with a scheme that would make warehousing at village levels a remunerative proposition for private investors.

Fourth, most of the warehouses are used for storing (abundant) rice and wheat procured by the Food Corporation of India and state government procurement agencies. There is little warehousing space available for other grains like pulses, bajra, jowar, methi and other millets. Unless the procurement targets of the FCI for rice and wheat are reduced, storing these grains will not happen.

Fifth, warehousing makes sense if the FCI or some other body steps in to procure grain (other than rice and wheat) at minimum support prices (MSPs). Announcing an MSP without a procurement makes the MSP a joke. Nobody observes it. A proposal to this effect was sent to the government by both NCDEX and MCX some time ago. Nothing has been done as yet . More about that here.

Sixth, using SHGs to develop warehousing space is a great idea. But it needs some market price protection mechanism. NDDB does this for milk – thanks to Dr Verghese Kurien. There is no such mechanism for grains other than rice and wheat that benefit only pampered and politically savvy crop growers. Remember how pulses imports a few years ago, hurt farmers badly?

Moreover, there has to be some procurement agency – either the commodity exchange or a government agency. These need to be included as well. There is also the issue of crop insurance should the grain get eaten by pests or get destroyed by the elements. This too has not been worked on.
To sum up – a great idea. But a lot more homework needs to be done.