Concerned with the huge foodgrain stocks lying under open sky because of inadequate storage facility, the warehousing industry has demanded from the government infrastructure status, which, it believes, will attract private investment into the sector.
According to a recent assessment by the National Collateral Management Services (NCMSL), the warehousing and delivery arm of the country’s largest agri commodity futures platform, National Commodity & Derivatives Exchange (NCDEX), 100 million tonnes of wheat is vulnerable to deterioration as it is kept outside different warehouses. The government procured about 35 million tonnes of wheat during the last harvesting season 2008-09. Considering the procurement at the minimum support price of Rs 1,080 a quintal (Rs 1,000 a quintal in the previous season), common estimates indicate the politically sensitive commodity kept in open values around Rs 10,800 crore.
If the loss is considered conservatively at 10 per cent according to the industry standard, about 1 million tonnes of the commodity valued Rs 1,080 crore would be lost this year.
The infrastructure status will entitle investors to a tax holiday under Section 80 (IA) of the Income Tax Act for a period of 10 years. Currently, investors in warehouses and cold chains are not given this benefit. “Once infrastructure status is given, the warehouse industry will attract private investments,” said Sanjay Kaul, MD and CEO of NCMSL.
The investment-linked tax incentive scheme for firms setting up cold stores and warehouses for farm produce was inadequate, looking at the industry’s massive requirement of warehousing facilities. With this scheme, no private investor would be interested in setting up cold chains and warehouses because of 10 years of break-even period, Kaul said.
The Budget scheme proposes that all capital expenditure, other than expenditure on land, goodwill and financial instruments, on building and operating such facilities can be fully treated as deductions for tax.
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“The Budget scheme facilitates tax exemptions only for large-scale investment, which major players may not be interested in. Hence, a huge amount of public-private partnership is required to meet the growing need for safe warehousing,” said Anil Choudhary, MD and CEO of the National Bulk Handling Corporation (NBHC). So far, the government has focused on roads, highways, ports etcetera but an important sector such as warehousing has remained neglected. As a consequence, private investors were hesitant in this sector, resulting in huge loss of agri commodities.
The recent task force set up by FICCI has estimated that due to the lack of scientific storage, there is around 8 per cent loss of grains that India produces and in terms of the MSP of each crop, this translates into approximately Rs 15,000 crore loss every year.