This would dry up liquidity, increase bid-ask spreads and increase the cost of hedging. A 300 per cent increase in the cost of trading in global commodities would severely impact the global competitiveness of Indian firms, which use the domestic futures market to hedge against volatility in metals and energy prices. It will setback the market by decades and India will lose out to China in becoming the price setter in certain commodities, specially bullion and base metals.
The proposal of CTT is a discriminatory step on at least two counts. First, it accords differential treatment within the commodity derivatives market, by taxing only non-agricultural commodities. Second, there is no rationale for imposing a transaction tax on commodity markets and exempting a larger derivative market – the currency market. CTT is regressive by design and the proposal of introducing it in a different market is devoid of any rationale.
Shreekant Javalgekar
MD & CEO, Multi Commodity Exchange of India