The birth of WDRA
On October 25, possibly due to tremendous pressure applied by the Supreme Court of India, the Warehouse Development & Regulation Act (WDRA) 2007 was notified.
The Act was passed three years ago but wasn’t notified all this while.
The WDRA, perhaps one of the most important pieces of legislation in recent times, could potentially change the way agriculture and the trade surrounding it happens.
Of course a lot will depend on the way in which many of the clauses of the WDRA get implemented, but the implications are mind-boggling.
The first impact will be large-scale rotting will be history. Grains begin to rot when they are not stored properly or when they have been procured in a defective state.
The latter takes place either because of unseasonal rains, excessive heat, disease, excessive exposure to pesticides or improper handling. At times, it can be a combination of all these factors.
But the primary cause of rotting remains poor storage conditions. The WDRA could remedy that because it would allow viable private investments in good storage facilities.
Currently, much of the storage is done by the Food Corporation of India, the Central Warehousing Corporation and other state storage agencies.
Two subsidiaries of the two biggest commodity exchanges in India are there too, but with limited storage facilities.
The National Commodities and Derivatives Exchange Ltd or NCDEX has a warehousing subsidiary known as National Collateral Management Services Ltd.
Close on its heels is the National Bulk Handling Corporation, a subsidiary of the Multi Commodity Exchange, the other major player in warehousing agri products.
So how will the WDRA ameliorate the current situation?
The current storage facilities in the country are far less than what they ought to be (see table). And to build more storage facilities close to cropping areas private investments are an imperative. For private monies to flow in, the warehousing business needs to be made more attractive, feasible.
And the way the WDRA plans promoting investments in this sector suggests that major private investments are a distinct possibility.
A big disincentive, without the WDRA, was that warehouses had to be ‘cleared’ by multiple authorities — the Agricultural Produce Market Committee, the local corporation and co-operative society, etc. Now all agricultural warehouses will have to meet the standards and procedures norms laid down by the WDRA.
Of course, till this happens, most warehouses will have to bear the burden of having one more regulatory body to pay heed to.
“But, we believe, that there will soon be a convergence of all these roles under the WDRA,” said Anil Choudhary, managing director and CEO, National Bulk Handling Corporation.
Adds Sanjay Kaul, managing director & CEO of National Collateral Management Services: “Till now, the cash flows of warehousing companies were invariably under strain and involved a lot of risk. Sometimes, an entrepreneur would build a warehouse to store the grain a government agency would want. But despite the contract, which allowed for a 7-year guaranteed use of the warehouse, government agencies could pick up a clause and refuse to pay the person.”
But will the WDRA help reduce the rotting of grain?
Yes, say both Kaul and Choudhary.
“Partially, and gradually,” concur representatives of the grain trade.
The WDRA also increases the guarantee period to 10 years and allows for minimum rental, which assures the investors of a minimum guaranteed return.
Moreover, all new warehouses will be picked up on the basis of tendering, after the bidders meet the basic pre-qualification norms as prescribed under the WDRA. And, most important, payments to investors will be through an escrow account, which takes bureaucratic caprice and corruption out of the equation.
With India facing a storage capacity shortage already, and with the urgent need to produce at least 50% more foodgrain to meet the demands of the new Food Security Act, which is likely to be tabled before the Parliament soon, many new warehouses will be needed.
KS Khokhar, vice-chancellor, CCS Haryana Agricultural University believes that food grain production can be increased by an additional 81.37 million tonnes, largely by focusing on the eastern and north eastern areas of India. Meaning, more warehouses will have to be created in new cropping areas.