Relevance: GS-2: Government policies and interventions

Key Phrases: Quality Warehouse Service, Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, Warehousing Development and Regulation Authority, Compulsory registration of godowns, Accreditation Agencies

Why in News?

• The Food and Public Distribution Ministry has suggested major amendments to the Warehousing (Development and Regulation) Act of 2007.
• The aim is to help farmers get access to quality warehouse service, but the Samyukt Kisan Morcha (SKM) fears that the amendments are for bringing back certain provisions of the repealed Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act through the backdoor.

Warehousing (Development and Regulation) Act, 2007:

• The legislation was enacted to ensure scientific storage by prescribing infrastructural and procedural standards.
• It prescribes the form and manner of registration of warehouses and issue of Negotiable Warehouse Receipts including electronic format and prescribes the establishment of Warehousing Development and Regulatory Authority (WDRA), a regulatory body under the Act.
• The Authority consists of a Chairperson and not more than two members.
• The Regulatory Authority registers and certifies warehouses intending to issue negotiable warehouse receipts and puts in place a system of quality certification and grading of commodities with a view to protecting the interests of holders of warehouse receipts against negligence, malpractices and fraud.
• Captive warehouses such as those of the Food Corporation of India are excluded from the ambit of the Act.

Warehousing Development and Regulatory Authority:

• The Warehousing Development and Regulatory Authority was established as a statutory body in 2010 under the provisions of Warehousing (Development and Regulation) Act, 2007.
• The Authority’s major goal is to establish the Negotiable Warehouse Receipt (NWR) system across the country which is now in electronic form.

What is a Warehouse receipt?

• A warehouse receipt is a document that provides proof of ownership of commodities that are stored in a warehouse.
• Warehouse receipts may be negotiable or non-negotiable.

Negotiable Warehouse Receipt (NWR):

• NWR was launched in 2011 by the Ministry of Consumer Affairs, Food & Public Distribution.
• NWR allows transfer of ownership of that commodity without having to deliver the physical commodity.
• NWRs can be traded, sold, swapped and used as collateral to support borrowing or loans from banks.
• A negotiable warehouse receipt specifies that the goods are deliverable to the bearer of the document, which means that they can be used as collateral for loans.
• If the borrower defaults, the lender takes over the warehouse receipt and can sell the goods to obtain payment of the loan.
• These receipts were made negotiable under Warehouse (Development and Regulation) Act, 2007 and are regulated by Warehousing Development and Regulatory Authority (WDRA).
• Most warehouse receipts are issued in negotiable form, making them eligible as collateral for loans.
• The Electronic Negotiable Warehouse Receipt (e-NWR) System was launched in 2017.

Non-Negotiable Warehouse Receipt:

• A non-negotiable warehouse receipt specifies to whom the goods shall be delivered and thus, these must be endorsed upon transfer.

Relevance of negotiable warehouse receipt system:

• The system helps farmers avail themselves of better credit facilities and avoid distress sale and minimise credit risk for the lender.
• The pledging/collaterisation of agricultural produce with a legal backing in the form of negotiable warehouse receipts leads to an increase in the flow of credit to rural areas, reduce cost of credit and spur related activities like standardisation grading, packaging and insurance and in development of chain of quality warehouses.

Key Highlights about the proposed amendments:

• The amendment aims to make the registration of godowns compulsory and raise the penalty for various offences and removes the provision of the jail term as a punishment for the offences.
• The powers of investigating, taking enforcement action, imposing a monetary penalty, recovering monetary penalty and adjudication have been provided in the amendment.
• Major provisions of the amendments include:
  1. Compulsory registration of godowns:
     • At present, registration with the Warehousing Development and Regulation Authority (WDRA) is optional.
     • The Central government will have powers to exempt any class of warehouses from registration with the Authority.
     • The application for registration of warehouses will be submitted directly to the WDRA and a new system of online applications, which will be contactless and faceless will be implemented and the average registration time will be reduced.
     • This will ensure a gradual and non-disruptive change to a regulated warehousing system.
  2. Increased Penalty:
     • The provision for three years imprisonment for various offences will be removed. Instead, a significant increase in the penalty from the current ₹1 lakh for various offences is being suggested.
  3. Change in the composition of WDRA:
     • At present, the Authority is composed of a Chairperson and two full-time members.
     • After the amendment, three ex-officio part-time members will be added to the Authority including Joint Secretaries in the Food and Economic Affairs departments and the Executive Director of the SEBI.

What is the idea behind these amendments?

• The government wants to make NWR a tool of the trade to improve the fiduciary trust of depositors and banks in the Negotiable Warehouse Receipt System.
• The Act will help in doing away with accreditation agencies after amendment.
• Accreditation Agencies are not required as the process is time-consuming, prone to malpractices, and led to complaints
• At present, there are about 60,000 warehouses in the country. Out of which, 4,700 warehouses have registered with the regulator but only 2,910 warehouses are active.
• In the first phase, the Centre plans to register warehouses with capacity above 5,000 tonnes followed by ones above 1,000-5,000 tonnes and then above 100 tonnes capacity.
• This will help farmers/depositors to have access to a large number of buyers nationwide with better bargaining power.

What are the objections raised against the Act?

• The SKM is of the view that the repealed Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act had also talked about similar provisions such as electronic trading in transaction platforms and freedom for trading at farmgate, cold storage, warehouse, and processing units.
• The amendments will help some big corporate houses so that they gain even more control over the warehousing and cold storage sector.

Source: Hindu BL

Mains Question:

Q. Amendments to the Warehousing (Development and Regulation) Act of 2007 are expected to provide impetus to rural economy. Discuss (250 words).