Date: 08/04/2023

Relevance: GS-2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Key Phrases: Electronic Negotiable Warehouse Receipt, Commodity Derivative Exchanges, Spot Market, efficient price discovery, Warehousing Development and Regulatory Authority, Standardised warehouses, Scientific storage.

Why in News?

• The introduction of Electronic Negotiable Warehouse Receipts (eNWRs) in India is a game-changer for farmers and the agriculture industry as a whole.

Electronic Negotiable Warehouse Receipt (eNWR):

• It is a digital warehousing receipt issued by registered warehouses regulated and governed by a statutory body — Warehousing Development and Regulatory Authority (WDRA) of India.
• The WDRA, at the time of setting up of the electronic Negotiable Warehouse Receipt (eNWR) ecosystem in 2016, had already envisaged that eNWR had the potential to be used as a three-in-one instrument-finance, trading, and settlement.
• This required identifying and implementing basic functions for the Repository to execute.

Trading Commodities through Commodity Derivative Exchanges

• The WDRA identified that trading the underlying commodities through recognized commodity derivative exchanges would result in efficient price discovery of the respective commodity.
• Warehouse receipts in an electronic form (eNWR) that would be recorded and managed through regulated repositories were envisioned to allow finance and trading to take place without the need to physically exchange goods.
• This move has helped farmers take the right decisions on their future cropping patterns and various other farming-related activities, as futures trading provides greater assurance on the price front.

Spot Market:

• The introduction of the "Spot Market of eNWRs" can bring all three markets (primary, secondary, and tertiary) together, where farmers and agri-participants can participate easily through WDRA-registered warehouses.
• The eNWR ensures that trading on the Exchange, as well as the Spot Market, is as transparent as possible.

Characteristics of an electronic NWR (e-NWR)

• An eNWR is available only in electronic form;
• The single source of information for the eNWR will be the Repository;
• Confidentiality, Integrity & Availability of the eNWR information will be provided by the repository;
• An eNWR has a time validity that is co-terminus with the shelf-life of the commodity or withdrawal of the commodity fully from the warehouse, after which it expires;
• An eNWR can be auctioned under certain conditions such as loan not repaid, delivery not taken on expiry, and on damage or spoilage of the commodity in the warehouse;
• All eNWRs can be traded through off-market or online trading platforms/exchanges;
• eNWR once entered with a transaction, be it pledge or transfer, or withdrawal, cannot be simultaneously used for any other purpose. Thus, dual use of the same eNWR is fully restricted.

Benefits of eNWR:

• Trust, transparency, and security:
  • The eNWR system is regulated by the Warehousing Development and Regulatory Authority (WDRA) of India, ensuring that it operates in a trusted, transparent, and secure manner.
  • The system's centralized online real-time recordkeeping and data dissemination offers traceability of the eNWR at every step.
• Easy transfer and splitting of eNWR :
  • The eNWR system allows for easy transfer and splitting of the eNWR, reducing the paperwork and eliminating the need to physically transfer goods.
  • This feature saves time, effort, and money for all stakeholders involved.
• Standardised warehouses :
  • The WDRA ensures that warehouses issuing eNWRs meet parameters to ensure the safety of the commodities stored.
  • This standardization provides farmers and other participants with confidence in the system.
• Lower interest rates on finance options:
  • The eNWR system has encouraged banks to offer easy finance options at relatively lower interest rates, building confidence in bankers with no additional cost for collateral monitoring or surveillance.
• Trading on registered online platforms:
  • As a tradeable instrument, eNWR ensures that the commodities stored in the warehouses are tracked and secure.
  • These commodities represented through eNWR can be offered for sale on registered online electronic platforms like eNAM, Agri Bazar, NCML market yards, NCDEX E-Markets Ltd. (NeML) or other similar online electronic platforms.
  • This feature results in better price realization while simultaneously creating an opportunity for arbitrage and hedging.
• Efficient price discovery:
  • The eNWR system facilitates fair spot-futures price co-movement and their eventual convergence, leading to efficient price discovery in the process.
  • This fair co-movement between futures and spot prices is critical to ensure hedging effectiveness.
• Scientific storage and maintenance of quality and quantity:
  • Scientific storage and maintenance of quality and quantity are of prime importance, which is achieved by the WDRA warehouses through the deployment of new technologies like weighing equipment, fumigation, sampling, testing, grading, transportation and handling, warehouse construction, flooring and ceiling, doors and windows, air circulation, temperature control, etc.

Conclusion:

• eNWR has all the features to become a strong negotiable instrument and a security instrument, formalizing agriculture finance and trade.
• With eNWR, farmers can mitigate the risks of price fluctuations and financial uncertainty, and the agricultural industry as a whole can experience greater stability and growth.

Source: The Hindu BL

Mains Question:

Q. Explain the concept of Electronic Negotiable Warehouse Receipts (eNWR) and its potential in transforming the agricultural sector in India.