Introduction

Warehouse Receipts at present do not enjoy the fiduciary trust of depositors and banks as there is fear of not being able to recover the loans in the events, such as fraud, or mis-management on behalf of the warehouse or the insolvency of the depositor. The legal remedies are also time consuming and inadequate. Considering these drawbacks, there was a need felt to develop a formal mechanism for Negotiable Warehouse Receipts system for all commodities including agricultural commodities.

The enactment of Warehousing (Development and Regulation) Act, 2007, a formal regulatory authority will be instituted to enforce accreditation of warehouses, a system of quality certification and grading of commodities, with a view to protect the interests of those holding warehouse receipts, against negligence, malpractices or fraud. The notification of the Warehouse (Development & Regulation) Act enacted in September 2007 is to be published shortly. The Act besides mandating the negotiability of warehouse receipts prescribes the form and manner of registration and issue of Negotiable Warehouse Receipts (NWR) and regulates trading of the receipts including electronic system for the same and other related issues through the establishment of Warehousing Development & Regulatory Authority [WRDA].

The introduction of negotiability of warehouse receipts has enormous benefits for the farmers of the country, who can now avoid distress sales, obtain finance against their stored produce and extract better prices for their produce, particularly in cases where sale of commodity is not backed by Minimum Support Price mechanism of the Government. Moreover, This pledging/collateralization of agricultural produce with a legal backing in the form of NWR will lead to increase in the flow of credit to the rural areas, reduce the cost of credit (due to certainty of recovering credit by the bank) and will spur other related activities, like standardization, grading, packaging and insurance in the agricultural sector. With the increased storage requirements, warehousing industry will also get a boost in rural areas fulfilling a part of gap in the logistic chain of agri-business in the rural sector.

NWR also has the potential to positively impact the government procurement programmes. With a stable NWR system in place, the Government agencies can accept and make payment to the farmers against the NWRs. At the time of requirement, the Government agencies can obtain foodgrain against NWRs from the warehouses concerned. This can work well for maintaining buffer and reserve stock for the Government agencies, more than the stocks which are rolling in nature and have to be put in the PDS frequently.