CTT brings down sentiment in commodity futures

Overall turnover down by a staggering 37.86% in first fortnight of levy

The Finance Ministry’s levy of the commodity transaction tax (CTT) on non-agricultural commodities, has pulled down the overall sentiment in commodity futures market, if the turnover recorded in this segment is an indication.

Data compiled by the markets regulator, the Forward Markets Commission (FMC) showed that agri commodities have lost around half (48.44%) of business in the first fortnight of the CTT levy (between July 1 and 15, 2013). In contrast, the targeted segments - bullion and energy- lost 44.71% and 25.38% of turnover respectively during the period under consideration.

The FMC data showed that total value of commodity trade has declined a staggering 37.86% to Rs 4,08,440.39 crore between July 1 and 15 of the current year as compared to Rs 6,57,296.47 crore in the corresponding period last year.

Value of agri commodities’ traded plunged to Rs 55,179.59 crore from Rs 1,07,015.46 crore. Similarly, bullion business has recorded a total turnover of Rs 1,56,565.25 crore from Rs 28,3154.60 crore. Energy trade turnover too fell to Rs 1,19,635.69 crore from Rs 1,60,329.15 crore.

After the Finance Minister P Chidambaram’s announcement of 0.01% of CTT levy in the Union Budget 2013, the definition of agri commodities was a bone of contention between the finance ministry and the food ministry.

But, effective July 1, the Finance Ministry through a notification implemented CTT in agri commodities which, according to trade sources, drove away business of commodity exchanges. The list which the Finance Ministry categorizes as agri commodities continues to remain a matter of discussion which the Food Minister K V Thomas leaves for his Finance counterpart.

Originally, CTT was meant for non-agri commodities. But, the list entails many such processed agri commodities which cannot be traded on commodity exchanges without direct linkages with their respective underlying farm output.

Consequently, farmers take the benchmark of processed commodities for underlying agri produce to take a decision on sowing during the next crop year. Such commodities are sugar, refined soya oil, etc. to name a few.

Exchanges and commodities markets participants showed disagreement with the Finance Minister’s categorization of agri commodities in the notification.

A commodity analyst said that agri commodity's future turnover was down because of CTT levy which kept day traders out of the market.