Budget may unveil a national warehousing grid to plug key gaps, Maharashtra modelhttps://indianexpress.com/article/india/union-budget-2019-nirmala-sitharaman-national-warehousing-grid-maharashtra-model-5808163/

Budget may unveil a national warehousing grid to plug key gaps, Maharashtra model

A template is likely to come from Maharashtra, where the state government has kicked off a scheme for identifying warehouses spread across various government departments and institutions, to be then taken over and managed by one nodal agency.

Union Budget, union budget 2019, july 5 budget, union budget date, warehouses, maharashtra model, nirmala sitharaman, finance minsiter, indian express
Finance Minister Nirmala Sitharaman with Finance Secretary Subhash Garg during a pre-budget consultation meeting. (Photo: PTI)

The Centre is readying the broad contours of an integrated warehousing network, with the aim of operationalising a ‘national warehousing grid’ to effectively integrate the highly fragmented warehousing market in India. An announcement on the scheme is likely in the Budget.

A template is likely to come from Maharashtra, where the state government has kicked off a scheme for identifying warehouses spread across various government departments and institutions, to be then taken over and managed by one nodal agency. The Centre’s scheme, officials involved said, aims at broad integration of the warehousing capacities in India, where approximately 90% of the warehousing space is controlled by unorganised players, with small warehouses of less than 10,000 sq ft area.

An action plan has already been approved by the Centre on sectoral basis for the construction of steel silos with a capacity of 100 lakh metric tonnes in Public Private Partnership (PPP) mode for modernising storage infrastructure and improving shelf life of stored foodgrains. The Ministry of Food Processing Industries too has launched a ‘Cold Chain Scheme’ under which some 180 projects entailing a capacity of 60 Lakh MT of agri produce would be completed by next year. Other sectors could also see similar interventions, officials indicated.

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A timely move

Practically, much of the country’s warehousing capacity outside of the agri sector is in the unorganised sector, with small warehouses of less than 10,000 sq ft area. This creates an economies of scale problem. The push for a scheme to integrate the sector comes at a time when India’s warehousing capacity, apart from conventional storing services, is now increasingly being used to offer value-added services.

Currently, of the total warehousing space of about 180 million sq ft in the country, the industrial segment accounts for about 86% and the agricultural sector the rest 14%, according to NITI Aayog statistics. Two-thirds of the warehousing capacity in the food storage segment is owned by the public sector.

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The push for the scheme comes at a time when India’s warehousing capacity, apart from conventional storing services, is increasingly being used to offer value-added services such as the consolidation and breaking up of cargo, packaging, labelling, bar coding and reverse logistics.

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An official said institutional steps are also planned “to ease the procedural hurdles in setting up warehousing infrastructure”. “For instance, in dealing with construction permits needed to build a warehouse, individuals require about 35 procedures and 190 days to obtain a permit. There will be a focus on reducing this.”

The sector is estimated to have seen Rs 1.25 lakh crore invested through private equity since 2014, according to data collated by property consultant JLL India. The leasing of warehousing space is documented as having seen a 45% surge last year to top 25 million sq ft in seven major cities, driven primarily by the e-commerce sector (23% of the total demand), according to real estate consultant CBRE. Warehouse leasing crossed the 25 million sq ft mark in 2018 in seven major cities — Delhi-NCR, Mumbai, Chennai, Kolkata, Hyderabad, Pune and Bengaluru — CBRE said, adding that the demand for better quality space resulted in rents rising by 10-25% last year.

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The prime beneficiaries of the new wave of growth in warehousing include peripheral locations of Tier 1 and Tier 2 cities, and much of the fresh investments would go into creating storage facilities for retail and consumer goods.

Officials involved in the exercise said the warehousing project is also aimed at plugging deficiencies given that India’s current cold storage capacity at 25 MT is barely sufficient for 10% of the fruits and vegetables produced in the country. The lack of adequate storage infrastructure is an important reason for the high cost of food products and wastage. The Ministry of Food Processing Industries’ Cold Chain Scheme aims to develop integrated cold storage and preservation infrastructure facilities without any interruptions in the supply chain and wrapping up of some 180 projects managing about 60 Lakh MT of agri produce by 2020.

Nearly 60% of the modern warehousing capacity in India is concentrated in top six cities, namely Ahmedabad, Bangaluru, Chennai, Mumbai, Delhi-NCR and Pune, with Hyderabad and Kolkata being the other major markets, according to Care Ratings. This trend is driven by the concentration of industrial activity and presence of sizeable urban population around these clusters.

The primary challenge that India’s warehousing market currently faces is acquisition of a feasible land parcel, given that land cost constitutes the largest component of a warehousing project. While rental values that a warehouse owner can charge are primarily driven by demand and supply factors, land prices are inherently dependent on multiple factors like development control regulations, infrastructure development and the best alternative usage of land.

In the agri sector, the total storage capacity available with the Food Corporation of India (FCI), Central Warehousing Corporation (CWC) and the State Agencies (both owned and hired capacity), is 86.26 million metric tonnes (as on May 31, 2019) comprising 73.98 million tonnes in covered godowns and 12.27 million tonnes in Cover and Plinth (CAP) storage. As against this, the total agri stock in these warehouses as on June 1, 2019, was 74.1 million tonnes.

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In the Maharashtra pilot, the warehouse integration project leverages the existing state government and cooperative society facilities for storage and creates a pan-Maharashtra warehouse grid under the ambit of a single body, the Maharashtra State Warehousing Corporation (MSWC), that is jointly controlled by the Maharashtra government and CWC. The MSWC has also been earmarked as the nodal agency for creating additional warehousing capacity.