Budget & Commodities: Comment

The commodities transaction tax (CTT) will make Indian market unusable for risk management. The Budget has added an incidence of 12 per cent service charge and Rs 17 per lakh for commodities trading, which will increase the cost by over 800 per cent.

This taxation was introduced in the securities market with attendant benefits of long-term capital gains and allowing futures income loss to be treated as normal business income loss.

But the commodities markets have not received these incentives and have exclusively been burdened with transaction cost. This will make our market inefficient compared with other global markets.

Commodities markets are global asset class and and users are very sensitive to transaction cost "" up to the fourth decimal place, in fact. Given that trade flows to the most efficient markets, which have the lowest cost of trading, we can expect business to migrate from regulated exchanges to international and unofficial local markets.

Jignesh Shah
MD & CEO, MCX

Premature levies

The functioning of securities markets are different from that of commodities market and, therefore, the commodities transaction tax (CTT) will only dampen the present market sentiment. When securities transaction tax (STT) was introduced four years ago, it was granted some benefits "" long-term capital gains were exempted and trading gains and losses were set off.

Now, the industry is yet to know whether CTT enjoys the same benefits or not. Securities markets are eight times larger than the commodities market and, hence, the levy is premature.

The setting up of a trading platform for carbon credits is a welcome move, especially, since carbon credits are gaining greater attention from the European Union. Carbon credits offer innumerable opportunities for the country, and therefore, it requires more trading platforms.

P H Ravikumar
MD, NCDEX

Boost for diamond processing

The finance minister's customs duty cut on roughs and polished zirconia and rough coral imports, from 10 per cent to 5 per cent, is a major leap in strengthening the $16-billion diamond processing industry.

The industry, though, wanted imports duty on roughs to be brought down to nil because of business losses on high labour and R&D costs and, most importantly, rupee appreciation. But this is a positive move and the first good step towards the betterment of the industry.

Sanjay Kothari
Chairman, GJEPC

Comexes disappointed

The Budget has introduced a commodities transaction tax on commodity derivative contracts on the lines of the securities transaction tax applicable on trading in the equity market.

While this is understandable from the point of view of rationalisation and harmonisation of market practices across the categories, the commodity market will be disappointed.

Trading in equity derivatives is construed as business activity and the related profit/loss as business income. However, trading in commodity derivatives is treated as speculative activity and accordingly treated for tax.

The market was expecting rationalisation of this anomaly. Perhaps the fine print of the Budget will provide same indication in this direction.

Commodity markets in India need structural changes for increasing depth and curbing of speculative activity. Banks, FIIs and other institutions should be permitted to trade in commodity markets. Commodity options need to be introduced. National commodity spot markets need significant legislative and administrative support for taking off. The Budget is silent on all these.

Sudip Bandopadhay
Director & CEO, Reliance Money

Well-oiled Budget

The agriculture loan waiver is a good morale booster for farmers. This will boost the overall agricultural sector in the country. But, at the same time, this will provide only a one-time solution to their problems.

On the other hand, the Finance Minister has provided good support for farmers by not cutting import duty on edible oil "" they can continue to grow edible oil seed in the seasons ahead. 

Davish Jain
Chairman, COOIT