by Mr, Sanjay Kaul, NCML
Most knowledgeable experts recognize that it is unrealistic to expect a fundamental change in the agricultural and food landscape in the country through the announcement of FDI in multi-brand retail. At best this serves a signal to potential investors. Much more is required to actually translate signals into concrete projects in this sector that can attract potential domestic and foreign investors.
UPA Government and the Finance Minister needs to give the right signals to investors in the warehousing and cold chain infrastructure space through an integrated package of measures to be announced in the Budget.
The major constraint in such infrastructure projects is the lengthy payback period. The industry has been asking for a special window to finance such projects at a concessional rate of interest with a loan repayment period that should stretch to at least 15 years.
The Finance Minister had in the 2012 Budget announced a Rs. 5000 crore allocation exclusively for creation of warehousing facilities using RIDF funds. Following the Budget speech NABARD also announced an interest subvention and re-finance scheme through Banks that lend to such warehouse infrastructure projects.
Unfortunately, for reasons not known, RBI objected and the scheme stands scrapped. It is hoped that the Finance Minister will bring clarity on this issue in his Budget speech.
A large part of the food grain stocking is currently being managed by the FCI and other Government agencies. Inefficient and unscientific storage practices lead to unnecessary wastage and deterioration and put a large burden on the exchequer.
Outsourcing storage and preservation services to the private sector has been recommended by the Planning Commission technical groups. Such outsourcing if taken up by the private sector can reduce the food subsidy burden annually by at least Rs. 2500 crore and simultaneously improve the upkeep and preservation of the stocks.
Cold chain infrastructure will require Government support in a big way to make it commercially viable. Existing subsidies for stand-alone cold stores are inadequate and do not lead to an integrated cold chain across the value chain. Of the 32 million MT cold store capacity that has been created 65% is for potatoes alone. Less than 3% of the 250 million MT of fruits and vegetables have any cold chain infrastructure leading to a 15-25% wastage. Well designed and large-scale PPP projects need to be launched on a viability-gap funding basis to modernize the country’s food chain.
Warehousing services provide value to the farm community. There is a clear case for service tax exemption for all warehousing and associated services. Similarly, all warehouse receipt financing of agriculture produce needs to be classified as “priority sector” lending. In the recent guidelines issued by RBI only agricultural produce belonging to small and marginal famers, limited to Rs. 25 lakh, can be classified as priority sector.
If agriculture is to flourish, the entire sector and all stakeholders including food processing units need to be supported and this narrow definition of priority sector lending needs to be broadened to cover participants across the value chain.
There is also an urgent need to support the modernization of wholesale markets and the food processing infrastructure. Terminal Markets and Food Parks need additional funding to make them viable. These will bring the much needed value addition in agriculture and require large infrastructure. Existing budgets for such initiatives are tiny given the scale of the problem and Budgets need to increase manifold.
About the author
Mr. Sanjay Kaul is MD and CEO, National Collateral Management Services Limited (NCML).
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