Negotiable warehouse receipts — How the RBI is helping formalise India’s agricultural economy


File photo | A pile of organic ginger lies on a warehouse floor in Rangpo, east Sikkim |Prashanth Vishwanathan/Bloomberg


Text Size:

After the meetings of the Monetary Policy Committee last week, RBI Governor Shaktikanta Das announced an increase in the limit of loans under priority sector lending from Rs 50 lakh to Rs 75 lakh per borrower. This includes loans availed by farmers, farmer producer organisations and primary agriculture cooperative societies. These loans are given for agricultural produce against a pledge or hypothecation for which the warehouses registered with the Warehousing Development and Regulatory Authority have issued negotiable warehouse receipts or electronic-NWRs.

The limit of loans for physical warehouse receipts (WHR) will continue to be Rs 50 lakh per borrower. The Reserve Bank of India (RBI)’s decision sends a clear message that e-NWRs are a superior instrument compared to a warehouse receipt issued by an unregistered warehouse.


Also read: Farm reform laws open the market. Now, a regulator is needed


How negotiable warehouse receipts work

The idea of e-NWRs flows from the Warehousing Development and Regulatory Authority (WDRA), which was set up under the Warehousing (Development and Regulation) Act, 2007. The Act came into force on 26 October 2010 because the government took three years to decide the appointment to the posts of chairperson and two members of the WDRA.

The main objective of the WDRA is to implement Negotiable Warehouse Receipt (NWR)/electronic-Negotiable Warehouse Receipt (e-NWR) system in India so that farmers (as well as businesses) are encouraged not to sell their produce immediately after harvest when prices tend to be the lowest in the year. They can store their produce in WDRA-registered warehouses that have to issue NWR/e-NWR to them. The farmers can seek loans from banks against their NWR/e-NWR. The WDRA regulates negotiability of warehouse receipts so as to improve the trust of depositors and banks in the newly evolving ecosystem.

The rules for registration of warehouses were notified by the WDRA in 2010. It then revised the rules in 2017 and prescribed the minimum financial, legal and infrastructure requirements for registration of warehouses with the WDRA.

So far, the WDRA has notified 123 agricultural commodities and 26 horticultural commodities for which the warehouses can issue e-NWRs. From October 2010 to July 2019, the registered warehouses were required to issue physical NWRs. These receipts were printed in the government’s security printing press.

From November 2017, the applications for registration of warehouses with the WDRA were to be submitted only in online mode. In August 2019, the WDRA issued a notification that made it mandatory for registered warehouses to issue negotiable warehouse receipts only in electronic form, that is, an e-NWR. The e-NWRs are recorded and maintained in digital form by two repositories approved by the WDRA. These are the National E-Repository Limited and CDSL Commodity Repository Limited. This was an important decision with huge potential to formalise the agricultural economy.


Also read: Data shows govt farm laws much needed, will work better with warehouses and transport reforms


Gaps in the warehouse system

In 2015, the Narendra Modi government merged the Forward Market Commission into the Security and Exchange Board of India (SEBI), and thus the regulation of commodity future exchanges came under the purview of SEBI. From January 2019, the settlement of derivative contracts of agricultural commodities became compulsory through e-NWRs only. Thus, traceability of stocks in future trading in agricultural commodities was achieved.

However, formalisation has met only limited success so far and most of India’s agricultural produce is still stored in un-registered warehouses. There are only 1,982 warehouses (including 93 inactive ones) registered with the WDRA, as on 31 March 2021. Their total capacity is 113.86 lakh tonne.

Registered warehouse storage capacity as on March 31, 2021 | Source: Siraj Hussain

Punjab has only five while Haryana has 16 registered warehouses. One reason is that agriculture in these states is not diversified and their major produce, wheat and paddy, are procured by the government at minimum support price (MSP). Agriculturally diversified states such as Madhya Pradesh (368), Rajasthan (128) and Maharashtra (104) have higher numbers of registered warehouses.

But the eastern states of India have very few registered warehouses. While West Bengal has five, Odisha has only four. In the northeast, there is not a single registered warehouse in Arunachal Pradesh, Manipur, Mizoram and Nagaland. Assam has just two, while there is only one WDRA-registered warehouse in Tripura.

Despite the potential of the WDR Act to formalise the agricultural economy, the government has not been very serious about strengthening the WDRA. Since January 2018, it is functioning without a regular chairperson and with just two members while the Act provisions a three-member body.

Private warehouse owners are reluctant to register their warehouses with the WDRA because they feel that regular audit and inspection by the body will restrict their operations and they may lose income from collateral management fees they earn from the banks. The banks continue to extend loans against warehouse receipts issued by unregistered warehouses. Moreover, the banks are not yet confident that the WDRA has adequate staff to supervise management of registered warehouses, which can ensure quality and quantity of stored agricultural produce.


Also read: Farmers will soon get an app to track warehouses to store produce & avoid crops going waste


Helping farmers gain

In a liberalised economic environment in which the Essential Commodities Act will apply only in situations of exceptional inflation, the WDRA ecosystem can help the government get real-time information of all (private as well as public) stocks stored in warehouses. It can enable the government to make informed decisions on tariffs, import policy, stocking and movement.

Despite all the statutory and regulatory changes, the ecosystem envisaged by the WDR Act, 2007 is yet to become mainstream. Since the largest stock of food grains is held by the Food Corporation of India (FCI) and NAFED on behalf of the government, it can use e-NWRs to monitor the stocks. The FCI can use e-NWRs to sell wheat and rice in the open market under the open market sale scheme. Similarly, NAFED can use it for the sale of pulses and oilseeds by just transferring the e-NWRs.

The Modi government should make registration with the WDRA mandatory for all warehouses with storage above 2,000 tonne so that over the next three years, they are upgraded by the owners to meet the scientific standards prescribed by the WDRA. Simultaneously, the WDRA must be allocated required human and financial resources to supervise the registered warehouses so that the banks can reduce their dependence on collateral managers.

So far, it is generally the traders who store the produce in warehouses and participate in commodity future markets. The farmer producer organisations need support and guidance of the government to store the produce after harvest so that the farmers can also gain from the off-season increase in prices.

The author retired as Union Agriculture Secretary. At present, he is Visiting Senior Fellow ICRIER. Views are personal. 

(Edited by Neera Majumdar)

Subscribe to our channels on YouTube & Telegram

Why news media is in crisis & How you can fix it

India needs free, fair, non-hyphenated and questioning journalism even more as it faces multiple crises.

But the news media is in a crisis of its own. There have been brutal layoffs and pay-cuts. The best of journalism is shrinking, yielding to crude prime-time spectacle.

ThePrint has the finest young reporters, columnists and editors working for it. Sustaining journalism of this quality needs smart and thinking people like you to pay for it. Whether you live in India or overseas, you can do it here.

Support Our Journalism