Housing more funds

Warehousing Bill, a double-edged sword for farmers

Published: Saturday 15 April 2006

-- (Credit: Shyamal)The Warehousing (Development and Regulation) Bill 2005 was introduced in Parliament in December 2005. If passed, Indian farmers could just become more bankable and financially secure. There are factors however, that threaten the gains.

The bill recommends that warehouse receipts given to farmers while storing their agricultural produce be treated as fully negotiable instruments, in other words, a proof that will enable them to avail of financial benefits, such as credits, from financial institutions. The present status of such receipts fall either under non-negotiable or partially-negotiable category. The problem is banks don't easily recognise partially negotiable instruments for credit purposes and they also take a lot of time in arriving at the value of products, which makes it difficult for farmers to avail of financial benefits.

The bill, if cleared, will enable farmers to use the receipts as a collateral, and in turn raise money with banks or any financial institution. A warehouse manager issues warehouse receipt to the person storing his produce with them. This receipt mentions the name and location of the warehouse, the date of issue, description of commodities, including the grade, weight and approximate value of the produce, based on prevalent prices. Besides availing loans, farmers can also use the receipts to trade in agricultural commodities futures market to get better prices. Another possibility is the entry of private players to help farmers with financial assistance.

According to the chairman of National Commission on Farmers, M S Swaminathan, this will reduce exploitation. "The most crucial period for farmers is the period between harvest of the crop and its sale. This period is also financially the leanest. Most exploitation happens during this period by moneylenders, as farmers can't approach institutional lenders, without any collateral," he says.

Gajendra Singh, a financial and commodities analyst with Mumbai-based Agrogain commodities, says, "The receipts give more credibility to a farmer's financial status."

The move, however, may not be advantageous for its targeted beneficiaries. Ajay Sharma of Agriculture Development Foundation, Ahmedabad, says, "This will benefit rich farmers only, mostly in Punjab, Haryana and parts of Maharashtra, as they would know how and where to manage the receipts. States like Orissa and West Bengal hardly have any functional warehouses. What about farmers from such states?" Forgery is yet another area of concern. Says Singh, "The warehouse receipt is in a paper format and can be manipulated easily." Moreover, with the overflow of credits, debt-burden is also an area of concern: 48.6 per cent of our farmers are already reeling under the debt yoke. Eminent economist A Vaidyanathan says, "Indian credit disbursal is supply driven, which increases the debt burden on farmers."

Benefits or no, a change of regulations can bring the much-needed momentum in the flow of institutional credit in the Indian farm sector.

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