Agriculture is an important component of the Indian Economy. It contributes to about 21% of India's Gross Domestic Product (GDP), 11% of total exports and provides employment to around 60% of the work force and is directly related to self-reliance, meeting the food and nutritional security of the people, equitable distribution of income and wealth in rural areas, reduction of poverty and improvement in the quality of life. The liberalized economic policies resulted in a commendable growth of some sectors of the economy, but when it comes to agricultural development, the growth scenario presents a dismal and bleak picture. There has been a consistent decline in the growth of the agricultural sector since 1990 compared to the 1980s. Commodity markets and warehouse financing are innovative initiatives devised specifically to revive and resurrect the agricultural sector with the twin objectives of providing price discovery and risk mitigation to the farmers. This article delves into all the relevant aspects of warehouse finance and warehouse infrastructure in India.

The neoliberal economic policies initiated in India since 1991 have revolutionized the financial services sector. Numerous new financial instruments were introduced and one such relatively new financial market initiative is the commodity market. The Government of India's decision to charter national multilevel commodity exchanges that meet certain stringent criteria was the first step towards organized commodity futures market development. The government believes that a properly functioning commodity futures market shall promote more efficient production, storage, marketing, agro-processing operations, financing, and improves the overall performance of the agricultural sector. A futures contract is a derivative instrument in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. The buyer agrees to buy something in future at a price which is determined now. The futures market is a centralized market place for buyers and sellers who meet to enter into future contracts. Pricing in the market is based on bids and offers which are matched electronically. It is thus a contract between two parties to buy or sell a commodity of a specified quantity and quality at a specific time in future at a specific price through an exchange. Bose (2007) writes that the basic objective of a commodity market is aimed at price discovery and risk mitigation.

Warehouse receipts are an important financial instrument in the commodity futures trade. Coulter (2005) treats Warehouse receipts as systems of inventory credit that provide farmers with documentation at the time of deposit of grain. The warehouse receipts can be traded, sold, swapped and used as collateral to support borrowings. It is also accepted for delivery against a derivative instrument for a future contract. At the time of a fall in the commodity prices beyond normal limits, the government has an option to purchase warehouse receipts to stabilize the prices. Similarly, the government need not hold physical stocks for ensuring food security and instead they can hold the warehouse receipts. The warehouse receipts also help in checking distress sales by the farmers at the time of abnormal market conditions. The success of warehouse receipts depends upon a well-developed and efficient warehouse infrastructure. Prasanna Kumar and Mishra (2005) opines that warehouses have the twin advantage of providing better and scientific storage facilities at a reasonable cost and facilitate the farmers and traders with convenient instrument of credit. The National Multi-Commodity Exchange (NMCE), the Punjab National Bank (PNB), and The Central Warehousing Corporation (CWC) launched a warehouse receipt financing program for the farming and trading community. Under this scheme, a farmer or trader can deposit an agricultural or non agricultural commodity in a CWC facility and obtain a warehouse receipt. The warehouse receipt can be used for obtaining loans from financial institutions. All these developments have brought the warehousing infrastructure to center stage. The effectiveness of warehouse receipts depends on a well-developed warehousing infrastructure.

Infrastructure Journal, Commodity Futures Markets, Warehousing Infrastructure, Agricultural Development, Agricultural Sectors, Economic Policies, Derivative Instruments, Financial Instruments, Central Warehousing Corporation, Time Management, Inventory Management, Agricultural Marketing Reforms, State Warehousing Corporations, Public Sector Warehouses.