It would be in the interest of FCI and its associates in the warehousing business to seriously look at polybags for storing food grains until such time suitable warehouses are built in the country
Warehousing of food grains, proper storage and upkeep, protection from bad weather and rodents, besides natural decay and weather effects, are becoming a big business opportunity for those who can manage the problems and handle upto a mammoth 120 million tonnes of grains in our country. This capacity need to cover our chemical fertiliser storage too, which is essential for the development and growth of the agricultural industry.
In simple terms, it is a capital intensive business, needing about Rs5,000 per tonne of warehousing and would require a minimum 10-12 years for a break-even of costs.
The biggest and widest storage capacity is held by the Food Corporation of India (FCI) and its associate organisations. There are state-wise storage capacities as well. Central Warehousing Corporation alone, for example, has 490 warehouses that can hold 9.8 million tonnes of food grains. Besides these, State Warehousing corporations in Andhra Pradesh, Haryana and Kerala take care of the local needs, though, not sufficient to meet the entire demand.
In the meantime, it is gratifying to note the reports from Indian Meteorological Department (IMD) indicate that though there is some shortfalls in some areas, on the whole the rainfall situation is not as alarming as originally thought, presuming that El Nino would cause great hardship. So far, so good.
In the meantime, the aam aadmi has been assured that there is sufficient stock of food grains in our national godowns and if there is a monsoon failure, the government will be able to meet the needs of the population.
It may be recalled that Moneylife had carried a detailed story on the food grains lost, which FCI had "admitted" to be 174,502 tonnes between 2005 and 2013 due to natural decay, pilferage, rodent consumption and damage, and loss due to weather conditions, while these were "unassessable" separately.
Therefore, it is in the interim period that efforts should be made to organise and expand storage facilities in the country, for a "rainy" day! Pun intended!
In addition to the efforts made by FCI, there are many private warehousing facilities available in the country and their number is growing by the day. These are considered to be a good business opportunity, and clearly, it is a national effort to conserve foodgrains.
According to information available, Shree Shubham Logistics, a subsidiary of Kalpataru Power Transmission Lines Ltd, is one of the serious players, which has set up (and is also expanding) its warehousing facilities in the country. It already has storage capacity available in Rajasthan, Gujarat, Maharashtra and Madhya Pradesh and is set to plan its expansion to Andhra Pradesh, Karnataka and Telengana. It is likely to look for other areas too in the South.
In the meantime, FCI itself should investigate the export opportunities directly, so that goods are moved out of its ware houses. It should take active interest in marketing the grains at least in neighbouring countries, including the Middle East. They should no longer be satisfied with being the central warehousing and supplying source to keep the public distribution system (PDS) going. If they need professional help, they should obtain it without any hesitation.
What is of immediate importance is to study the practices adopted in countries like US, Australia and Ukraine where they have huge harvests and ship large quantities outside. We need to learn how they save their foodgrain from the weather and rodents!
One of the many ways by which they protect and store the food grains, apart from huge silos, is the use of huge grain storage bags, made in polythene, which are some 300 feet (91 metres) long and 10 feet in diameter, which are common in Argentina. These giant storages look like long sausages, covering almost the entire length of a football field with special equipment needed for filling them.
After studying the operations in Argentina, Jerry Sechler, vice-president (sales) of Loftness Specialised Equipment Inc, a Hector, Minnesota-based private firm, introduced these bagging machines in the US in 2008. There are others like Antelope Farm Suppliers, Richardson, North Dakota which can also make available these bags for storage.
These polybags (white) have an outside layer to reflect the sun's heat, while the inner layer is black and acts as a barrier to sunlight and helps maintain lower than ambient temperature inside. These giant storage bags are used by farmers to hold on to their grains, so as to avoid distress selling at low prices.
It would be in the interest of FCI and its associates in the warehousing business to seriously look at polybags for storing food grains until such time suitable warehouses are built in the country. One wonders why this has not been done so far.
In any case, apart from assuring the food security for the people, the Indian government is also considering ways and means to improve FCI as an organisation, to be able to stand on its own feet, rather than being a subsidised government body. It is time the government seriously considers whether FCI should be divested whereby the government holds 26%, which should include all the land and warehouses already built as solid assets, and the rest should be offered to the public at large.
FCI should be an independent self-supporting organisation, run professionally to the best interest of the nation.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
The absence of hand holding at every step, essential for business success, is proving to be a bane for MSME start-ups
Micro, Small and Medium Enterprises (MSMEs) play a critical role in the economic growth in India. Apart from being the second largest contributor in the employment generation in the country, they play a key role in gross domestic product (GDP) growth and foreign exchange earnings. India UnInc ( A term used by Prof R Vaidyanathan), in spite of being the backbone of the economy, continues to suffer from several issues, which hinders its growth. While financing remains a big constraint, with most of the MSMEs left to themselves to mobilise funds for business needs, the biggest problem that MSMEs face today is the lack of hand holding mechanism for a start up business in India.
Starting a business is a big challenge in India. Most of the people associate the challenge of starting a business to the availability of capital. While funding is a pre-requisite to run a business, the matter does not end here. There are three critical steps that a small business unit will have to take. The first is a set of approvals required to start the business, followed by production of goods and services and the last stage is marketing or selling of goods. Most of the small start-up businesses have no clue about this three-stage process apart from managing the challenge of managing funds.
Let us look at the first step. A business unit needs a set of approvals before it starts functioning. The approval ranges from obtaining a no-pollution certificate for registration with tax authorities to obtaining a no-objection certificate from the fire department, wherever applicable. For instance, not many entrepreneurs know that if they start a business involving household electrical appliances, an approval from Bureau of Indian Standards (BIS) would be required. Even a non-polluting unit would need to file an application with relevant pollution department and obtain an acknowledgment.
A small business unit, in order to avail benefits of various schemes offered by the government needs to be registered with the District Industries Center (DIC). This registration is obtained by submitting a Entrepreneurs Memorandum (EM-1 & EM-2). Since many MSMEs may not understand the significance of this, they may miss out on the benefits provided by the government. Typically EM-I registration is required for for industrial land, credit and pollution clearance. EM-2 is required for eligibility for marketing support, raw material, assistance under industrial / MSME policies such as VAT reimbursement, capital investment subsidy and interest subsidy. Unfortunately, most of the MSMEs remain unregistered in India and fail to become eligible for these benefits.
After a business unit has been set up and is ready for production or providing services, the problem for MSMEs is not over. There can be cost overruns causing businesses to run out of money and fail. There is a complete absence of understanding on lean manufacturing for MSMEs. MSMEs have limited bargaining powers and along with cost escalation, the viability of the business becomes questionable. One simple example of cost escalation could be management of heating, ventilation and air conditioning, which can add to its power supply bills.
The biggest support is required at the time of sales. Lack of awareness about the right market place, where goods can be offered for sale is one of the biggest challenges that MSMEs face. In spite of the government coming out with plans such as purchase preference policy, MSMEs find it difficult to sell their products. There is an online portal which National Small Industries Corp (NSIC) is providing to sell products but such schemes are not very effective. MSMEs often fail to realise the significance of branding their products and at best end up becoming a supplier of raw material for large corporations.
The most significant point in the entire cycle of MSMEs business is its growth from micro to small to medium and to large entities. In this growth path, the first stage is very critical. This phase of successful launch of business can take it further to take off stage. Till the stage of take off, capital is as critical as hand holding for MSMEs.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
Insurance Bill is likely to be taken up for discussion in the Rajya Sabha on Monday
The Rajya Sabha is likely to take up on Monday the Insurance Bill, which seeks to hike foreign investment cap in the sector to 49% with a rider that management control remains with Indian promoters.
The Bill, which was listed in the Rajya Sabha agenda on Thursday, could not be taken up for discussion as the Opposition wanted more time to go through the amendments. The government has proposed as many as 97 amendments to the original Bill.
Finance Minister, Arun Jaitley, in the Budget 2014-15 speech had said that the insurance sector was investment starved and there was a need to increase the composite cap in the sector to 49%, with full Indian management and control, through the FIPB route.
Once approved by Parliament, it would help insurers to get the much needed capital from overseas partners.
Last week, the Cabinet gave a go-ahead to hike the foreign direct investment (FDI) cap in insurance sector to 49% with a rider that management control will remain in the hands of Indian promoters.
The approval to hike the FDI limit from the current 26%, a proposal which has been pending since 2008, is expected to attract long-term capital, besides improving the overall investment climate.