Policy Stimulus: New initiatives and plans to enhance storage infrastructure

New initiatives and plans to enhance storage infrastructure

In the past few years there has been increased focus on storage infrastructure in the country. Various initiatives such as the Warehousing Infrastructure Fund, the Private Entrepreneurs Guarantee Scheme, the central sector scheme for construction of godowns and the scheme for construction of silos under the public-private partnership (PPP) mode have been implemented by the government to give an impetus to the warehousing and storage segment. Under Union Budget 2020-21, funds worth Rs 10.22 billion have been allocated for the food storage and warehousing segment. Meanwhile, Rs 500 billion has been sanctioned for loans to the segment during 2020-21.

Key announcements under Union Budget 2020-21

Viability gap funding for warehouse development

In order to expand regulated warehousing capacity, the central government has announced the provision of viability gap funding (VGF) for the creation of warehouses on a PPP basis. These warehouses are to be developed in line with Warehouse Development and Regulatory Authority (WDRA) norms. The government will provide VGF for setting up these efficient warehouses at the block/taluka level. Besides, the Food Corporation of India and the Central Warehousing Corporation will undertake the development of such warehouses on their land too.

Warehouses registered under the WDRA issue electronic negotiable warehouse receipts (eNWRs) (instead of physical warehouse receipts) that are easy to transfer and immune to tampering. The central government has also announced that eNWRs will soon be linked to the electronic National Agriculture Markets (eNAM) platform. The issuance of eNWRs is set to directly benefit farmers by making it easier for them to get funds. Besides, farmers may also get a better price for their produce as grains stored in WDRA-accredited warehouses are sorted and graded. The VGF scheme is expected to incentivise private participation the agricultural warehousing segment.

Village storage scheme

The government has announced that it will launch a village storage scheme through women self-help groups. Financial assistance in the form of loans from the Micro Units Development’s and Refinance Agency Bank and the National Bank for Agriculture and Rural Development (NABARD) will be provided for this purpose. The scheme is expected to provide backward linkages for buying seeds, thereby reducing logistics costs. The scheme will also provide farmers with holding capacity.

National cold storage grid

In order to increase cold storage facilities, the central government has proposed the building of a seamless national cold storage chain. The government has announced that as part of the plan, Indian Railways will set up Kisan Rail through a PPP arrangement, to build a seamless national cold supply chain for perishables, including milk, meat and fish. Besides, express and freight trains will also have refrigerated coaches. The government has also announced that KrishiUdaan will be launched by the Ministry of Civil Aviation on both national and international routes. This will help improve value realisation immensely especially in the Northeast and tribal districts.

Mapping and geotagging of storage facilities

The government has announced that NABARD will map and geotag warehouses and cold storage facilities to make them more efficient. Mapping of storage facilities will help NABARD direct resources in the right direction to expand capacity where there is a need. Besides, geotagging of warehouses is key to repealing the Essential Commodities Act, which is considered a major stumbling block in the growth of the agricultural sector. If geotagging technology is used properly, the government will have complete and real-time data on storage.

National Logistics Policy

The central government is set to release the National Logistics Policy soon. A draft policy has already been formulated by the government. The policy is expected to streamline rules and address supply-side constraints, leading to lower logistics costs and greater competitiveness for Indian products worldwide. Under the logistics policy, an integrated policy will be defined for the development of multimodal logistic parks (MMLPs). Besides, a Multi Modal Logistics Park Authority will also be set up. The authority will identify the right locations for setting up MMLPs, facilitate single-window administrative approvals and monitor the development and performance of MMLPs. It may also provide VGF to select MMLP projects. Meanwhile, the logistics wing to be set up under the policy will coordinate with the relevant central ministries to identify and fund initiatives to scale up the use of technology and automation in warehouses and promote the setting up of specialised storage infrastructure.

COVID-19 stimulus package

To provide an additional impetus to the development of storage/warehousing infrastructure to tackle the COVID-19 crisis, the Ministry of Finance released a stimulus package in May 2020. As part of the package, the ministry has announced a Rs 1 trillion fund for entrepreneurs to set up facilities to procure, store and market agricultural produce, a move aimed at improving the value realised by farmers. The proposed fund will be used by aggregators, cooperative societies and farm entrepreneurs for strengthening farm gate infrastructure. It will facilitate financing cold chain facilities and storage infrastructure and establishing post-harvest management infrastructure. The initiative will benefit private agricultural entrepreneurs and start-ups that aim to procure produce from farmers and reach global markets but do not have the requisite infrastructure.

The Ministry of Finance has also announced that Operation Green, a price fixation scheme that aims to ensure that farmers are given the right price for their produce, will be expanded to cover all fruits and vegetables, instead of just tomatoes, onions and potatoes. This will be done with an additional Rs 5 billion fund allocation under the scheme. Operation Green includes a 50 per cent subsidy on transport from surplus to deficit markets. It also includes a 50 per cent subsidy on storage, including cold storages. The project will be implemented on a pilot basis for six months and is likely to be extended further.

The central cabinet has also approved an amendment to the Essential Commodities Act, 1955, to deregulate agricultural commodities such as cereals, pulses, oilseeds, onions and potatoes besides promulgating an ordinance to allow farmers to engage with processors, aggregators, large retailers and exporters.

National warehousing grid

The central government is readying the broad contours of an integrated warehousing network, with the aim of operationalising a national warehousing grid to effectively integrate the country’s highly fragmented warehousing market. The scheme aims at broad integration of warehousing capacities, where approximately 90 per cent of the warehousing space is controlled by unorganised players, with small warehouses with an area of less than 10,000 square feet each. The project is also aimed at plugging deficiencies given that the current cold storage capacity is barely sufficient for 10 per cent of the fruits and vegetables produced in the country.

The prime beneficiaries of the new wave of growth in warehousing include peripheral locations of Tier 1 and Tier 2 cities, and much of the fresh investments will go towards creating storage facilities for retail and consumer goods. The template for the formation of a grid is likely to come from Maharashtra, where the state government has kicked off a scheme for identifying warehouses spread across various government departments and institutions, to be subsequently taken over and managed by one nodal agency. Reportedly, institutional steps are also being planned to ease the procedural hurdles in setting up warehousing infrastructure. For instance, in dealing with construction permits needed to build a warehouse, a total 35 steps are involved and it takes about 190 days to obtain a permit. There will be a concerted focus on reducing this.

Summing up

An effective and efficient logistics ecosystem can be a key contributor to robust economic growth, with the potential of facilitating domestic and foreign trade, promoting global competitiveness, enhancing incomes, driving the Make in India initiative and reducing economic disparities across geographies. The government has also recognised the importance of the segment and has been taking initiatives to enhance the storage and supply chain infrastructure. However, despite a number of measures, the warehousing segment remains highly unorganised and fragmented, discouraging investment by private organised players. That said, the recent announcements by the government are expected to enhance private participation by providing a more organised framework for setting up warehouses. The initiatives are also in line with the aim of ensuring food security, especially during the COVID-19 crisis.