There is a need to introduce a negotiable warehouse receipts system in the country as it would result in increased liquidity in rural areas, lower financing costs, more efficient supply chains, enhanced rewards for grading and quality, development of other productivity-enhancing agricultural services and better price-risk management.
Mentioning these benefits, the report of the inter-ministerial task force on agricultural marketing reforms added that all these developments will result in higher returns to farmers, better service to consumers, lower prices, better quality and greater variety. There would also be macro economic benefits through a more equitable trade balance in agricultural commodities.
Introduction of the system for agricultural commodities will also enhance competitiveness of Indian agriculture in global markets. The aim was to greatly expand availability of warehousing services, while making warehouse receipts a prime tool of trade and trade financing throughout the country.
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It will also enable the banks to improve the quality of the agricultural sector lending portfolio.
At present, banking institutions were hesitant in making advances against the CWC warehouse receipt when the holder was not a person in whose favour the receipt was originally issued, the report says.
Transferability of the warehouse receipt by endorsement was presently further limited by the fact that the original holder of the warehouse receipt could not transfer it to another person without clearing loans from banks.
This was inhibiting negotiablity of warehouse receipts. The depositor could not sell the goods before settling his loan with the bank.