Unlike several ‘momentous’ decisions in the past, the Narendra Modi government needs to be complimented for releasing the “National Monetisation Pipeline” document in two volumes in the public domain. It will bring some clarity regarding the government’s thinking about raising resources from monetisation of critical assets created over several decades of public investment. One hopes that the documents will be carefully read, not only by officials in ministries and Public Sector Undertakings, whose critical assets are proposed to be offered to the private sector for long-term use, but also by their employees and other stakeholders.
Unlike privatisation, ownership of assets will not be handed over to the private party and later returned to the government after the period of monetisation is over. At least this is the theory. While roads, railways, and power sectors will offer huge assets for monetisation, in this article we examine the proposals of monetisation for the warehousing sector.
The impact on MSP
Several expert committees in the last few years have recommended pruning down procurement of wheat and rice at the Minimum Support Price (MSP). However, the National Monetisation Pipeline (NMP) acknowledges that due to MSP policy, there is a need to augment storage capacity. It sets four objectives for this.
First, it recommends improvement in storage infrastructure. Second, it asks that the cost of storage and handling be reduced. Third, it suggests a reduction in losses in the storage and handling of food grains. And finally, it proposes easing the burden on budgetary support.
All of this is sought to be achieved by tapping the private sector so as to bring efficiency in storage and handling operations.
In order to understand the proposal relating to the warehousing sector, let us examine the current storage capacity for food grains procured at MSP for the central pool.
Management and preservation of food grains by FCI
The warehouses owned by the Food Corporation of India (FCI) are managed by its own staff. Hired storage capacity is of two types. Some warehouses are taken on lease from Central Warehousing Corporation (CWC) or State Warehousing Corporations (SWCs), managed by their respective staff. Warehouses taken on lease from private owners are also managed by FCI’s own staff. It must be noted that the warehouses store food grains of high value and require professional expertise in the preservation and maintenance of quality. FCI, CWC and SWCs have a regular and well-paid cadre of quality control. Private owners do not pay their employees as well.
[Source: Foodgrain Bulletin April 2020]
Out of 258.24 lakh tonnes of capacity hired by the FCI, 115.95 lakh tonne was built (up to 31 March 2020) under the Private Entrepreneurs Guarantee (PEG) Scheme, launched by the United Progressive Alliance government in 2008. These warehouses are mostly owned by private owners under a ten-year guarantee for payment of rent by the FCI or state agencies. The entire expenditure on storage, preservation, and handling is built into the rent payable to the warehouse owner. Hence, the capacity built under PEG is not available for monetisation.
It is of course possible to offer FCI-owned warehouses to the private sector for preservation and maintenance of stocks. The private sector may do it more economically, as the expenditure on staff can be lower than what FCI incurs.
This is not the first time that warehouses will be offered to private parties for management. In the past, some state governments have tried it and there have been disputes about the quality and quantity of stock at the time of takeover for their distribution under the Public Distribution System (PDS).
So, the only storage capacity of FCI that can be monetised is 127.77 lakh tonne.
How monetisation may hold up as per NMP
We will try to understand the scheme of monetisation with an example from an FCI-owned warehouse in Mumbai. There are several locations across India — Delhi, Bengaluru, Chennai, etc, which are similarly placed.
In Borivali, Mumbai, which is an affluent and expensive suburb near the airport, FCI owns a warehouse with a capacity of almost 1.20 lakh tonne. There is also a railway siding in the warehouse, which is located on a plot of land of about 120 acres. The warehouse was built between 1962 and 1964, and the ownership of the land has been under dispute. It was only last year that the matter was finally decided by the Supreme Court and the FCI is now the legal owner of the land.
So, what will monetisation of this warehouse mean?
Volume II of the National Monetisation Pipeline says that most of the warehouses constructed in the 1980s and 1990s are located in prime urban locations. Land in these warehouses can be ‘leveraged’ for augmenting the quality as well as the capacity of storage infrastructure. NMP further says that the private sector can be mandated to undertake the task of redevelopment/refurbishment of assets.
At another place, the NMP mentions that a silo capacity of 175 lakh tonnes for storage of wheat may be developed. In previous tenders for steel silos, the FCI has been given a guarantee of paying storage charges for 30 years.
This means that the Modi government has made up its mind that it will continue to procure wheat at MSP and that a silo capacity of 175 lakh tonnes will be used for this. Construction of so much additional silo storage capacity also means that a shift to the direct transfer of food subsidies to beneficiaries is not to be expected.
So, in the case of 120 acres of prime land in Borivali, will the FCI insist on the construction of wheat silos? Or will the FCI agree to the construction of a silo at another location and leave this land for commercial use? About 16-20 acres of land is required for a silo of 50,000 tonnes with a railway siding. At Taloja in Navi Mumbai, the FCI already has a silo built and operated by Adani Agri Logistics Limited. This project became operational in 2007 and the existing contract runs till 2027. Wheat is transported in bulk on trains from large silos of 2 lakh tonnes each at Moga (Punjab) and Kaithal (Haryana).
The beneficiary of monetisation of land at Borivali will surely like that the warehousing is completely shifted away so that the entire 120 acres of land can be used for commercial purposes.
The spirit of the scheme outlined in NMP is to bring improvement and efficiency to the use of existing assets. That would mean that the precious land at Borivali would continue to have a storage facility.
Proper implementation of monetisation
Borivali warehouse of FCI in Mumbai is an example of precious assets held by the government and PSUs in many urban locations. I have repeatedly argued for a ten-year perspective plan for PDS. If physical procurement of wheat and rice and their distribution under the PDS has to continue in 2031 and beyond, the government may well decide to have storage capacity for food grains in the heart of even large cities, on very expensive lands. An alternative approach could be the closure of such warehouses on expensive lands in major cities and set up storage capacity on much cheaper lands in rural locations.
Property developers would dream of commercial use of such expensive properties located in the heart of urban centres. They would hardly be interested in running warehouses or silos at such premium locations and in the objectives outlined for monetisation of warehousing infrastructure in urban locations.
Monetisation can be a way out of severe economic distress resulting from a series of wrong economic decisions and its consequent slowing of the economy and stagnant revenues. It will also require a lot of consultation with state governments whose permissions will be required for the programme’s success.
One hopes that the revenue from asset monetisation will not be used for meeting revenue expenditure of the Modi government or for fanciful projects of little public use. These assets were mostly created by the previous generation and the next generation has a right to benefit from the new ones created out of their monetisation.
The author is a Visiting Fellow at Indian Council for International Economic Relations (ICRIER) and was CMD of Food Corporation of India (FCI) and Union Agriculture Secretary.
(Edited by Srinjoy Dey)