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January 2014

Sohanlal Commodity Management P Ltd ®. Presentation on Existing issues : Warehousing Industry. January 2014. Warehousing Industry: an introduction. The warehousing capacity available in India, in public, cooperative and private sector is about 10.87 Cr MT’s 1.

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January 2014

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  1. Sohanlal Commodity Management P Ltd ® Presentation on Existing issues : Warehousing Industry January 2014

  2. Warehousing Industry: an introduction The warehousing capacity available in India, in public, cooperative and private sector is about 10.87 Cr MT’s1 As estimated by the Working Group on Agricultural Marketing, Secondary Agriculture and Policy required for internal and external trade, additional 3.5 Cr MT’s 1 warehousing capacity is required during the 12th Five Year Plan period for the storage of all major crops Lack of storage capacity and inefficient storage techniques result in ~10% of grain being wasted annually. In value terms, this amounts to ~Rs 60,000 Cr or ~ $ 1,000 Cr of wasted grain2 Only a fifth of the current warehouses are located in major consumption states, creating regional imbalance reason for this can be attributed to the fact that even under the best of scenario that the warehouse will be used to its 100% capacity with least borrowing rate of 7%, the payback period is 13 years3 1Report of working group on warehousing development and regulation for the twelfth plan period(2012-17) 2Food processing training cum Incubation Centre, Indian Institute of crop processing technology, Ministry of Food Processing industries, Government of India 3Study of Rural Godown Scheme

  3. Issues faced in the warehousing of agricultural commodities Lack of processes and credibility in the Warehousing industry in Mandi and Exchange Business Lack of adequate infrastructure for providing services Attracting and retaining the right stakeholders as WSP by offering tax incentives

  4. Issue 1: Lack of processes and credibility in the Warehousing industry in Mandi& Exchange Business Background: Issues surrounding processes have been the biggest bane for Indian warehousing industry Clarity on appointment of Warehousing Service Providers (WSPs) is an immediate necessity Since WSPs would be required to issue negotiable warehouse receipts (WRs), which would be readily tradable on any platform; the criteria for selection needs to be established first Recommended Criteria’s for selection of WSPs: Net worth of INR 100 Cr Minimum 3 years of experience in the warehousing industry Standard operating procedures (SPOs) to be laid down Professional management team Action required: Issue of warehousing norms for selection of WSPs by Warehouse Development and Regulatory Authority (WRDA) Ensuring that the existing warehousing infrastructure handled by professionally managed warehousing companies in adherence to SOPs Impact: Streamlining of warehousing and logistic space for future operations Transparency in the system for the end customer Quality and Quantity of the commodities stored ensured which would reduce import dependence Acceptance of WRs as negotiable instruments Saving of Rs60,000 Cr can be achieved by just implementing processes in the existing infrastructure. E.g. SLCM via its practice of regular monitoring of operations has been able to reduce the storage losses significantly from estimated 10% to 0.5% as mentioned by FICCI in its study on “Partnership to Scale New Heights: India-US Collaboration in Agriculture”

  5. Issue 2: Lack of adequate infrastructure for providing services Background: Under present scenario a large number of warehouses do not meet the criteria laid down by WRDA such as :- Ventilation Number of entry/exit points Proper plinth, etc. Warehousing industry is undergoing a tremendous change as the new warehouses being constructed are in compliance of such rules and regulations laid down, however such infrastructure is inadequate to cover the entire requirement in many geographic locations. Recommendations: Norms relating to Infrastructure requirements should be relaxed as long as the WSP is able to ensure the quality and quantity of the commodities stored Action required: WRDA to issue practical norms for selection of warehouses Impact: Facilities would work out to be cost effective and widely available for all stake holders Farmers, Arhtiyas etc. would not be loaded with heavy rentals which could facilitate easier adoption of negotiable WR’s by all stake holders

  6. Issue 3: Attracting and retaining right stakeholders as WSP by offering tax incentives Background: Section 35AD of the IT Act provides for Investment linked deduction of capital expenditure incurred for warehouses for storage of food grains Warehousing services (such as loading, unloading, packing, storage or warehousing of agricultural produce) are covered under the negative list., hence do not attract Service Tax To ensure sustained investments and interest from large capital companies, sectoral margins have to be improved Recommendations: Income Tax Exemption on Profits arising out of warehousing services businesses The definition of Negative List pertaining to Agricultural Warehousing should be expanded to include renting of space by the WSP, Fumigation and such other allied services Service Tax incurred on communication, travelling, electricity charges etc. whilst providing Warehousing Services on Agricultural Commodities should be refundable Abolition of VAT/ Excise duties collected on consumables, equipment etc. used for providing warehousing services on agricultural products Any up gradation of Labs (for the purpose of testing quality) or equipment/ systems (e.g. Implementing SAP/hand held device for warehousing business) should attract certain grant / subsidy Action required: Laying down of a road map for drawing interest to the agricultural commodities storage sector Allowance of Real Estate Investment Trusts (REITS) with special focus on creation of Warehouses for Agricultural Purpose Impact: Improved participation of professionally managed, large & organisedplayers Construction of warehouses fulfilling norms laid down by WRDA Transparency in system for the end customer Better maintenance of quality and quantity stored

  7. Technology – SLCM’s edge to efficiently manage SLCM has taken number of technology-backed initiatives that are first in the sector. This ensures real time tracking of commodities that are stored, better compliance, almost nil loss due to theft etc. Launched biometric hand held device at 26 locations. GPS & GPRS enabled, it facilitates digital signature and cuts down turnaround time Allows real time capturing of data in SAP with real time reporting and controls Ensures warehouse manager availability • SLCM has recently filed a patent for its data management system for its warehouses. The handheld device is a smart portable system that may be configured to track the record of the data inventory and communicate the same to the client on real time basis. • The handheld device has multiple roles: • For data management in a warehouse. • May be configured to communicate to a MIS database kept at a remote location. • Can be configured to fire a SMS to the client upon validation of the data by the main database.

  8. THANK YOU. www.slc-india.com Disclaimer : This presentation should not be shared without SLCM Consent

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