Govt may allow MFs, FIIs entry in commodity futures trade

The Central government has welcomed Forward Markets Commission (FMC)'s recommendations to allow the participation of mutual funds (MFs) and foreign institutional investors (FIIs) and banks in the commodity futures.

At the inaugural speech in a seminar organised by the FMC, Sharad Pawar, Union agriculture and consumer affairs minister, said that such a move would increase liquidity in commodities trade.

He, however, added that a lot of administrative hurdles need to be cleared before the FMCs recommendations see the light of day. Also, there are regulatory hurdles which prevent banks, FIIs and mutual funds MFs entry into commodities trade but once the necessary regulations are amended, they would be able to trade in commodities, Pawar added.

On the issue of granting autonomy to FMC, Pawar said the government would introduce a Bill in the next parliamentary session, not only for financial autonomy to the commission, but also to empower it to make necessary changes to legislations (like Prevention of Food Adulteration Act and Essential Commodities Act), for facilitating greater transperancy and check malpractices.

Amendment in the Forward Contracts (Regulation) Act 1952, Pawar said, will be aimed at bringing statutory provisions in line with changing times. Once all the regulations are amended, the FMC would be an autonomous body empowered to take financial and administrative decisions independently.

The proposed changes would bring about benefits to farmers by providing additional hedge cover. On Warehousing (development and regulation) Bill, meant for making warehouse receipt a fully negotiable instrument, the minister also expressed hope of the Bill being tabled and passed in the ongoing session of parliament.

Denying the reports of a merger of FMC with Securities and Exchange Board of India (Sebi), the consumers affairs secretary L Mansingh said such a move was not in the horizon atleast for the next three years.

Joseph Mathew of Multi Commodities Exchange (MCX) demanded of permitting it taking terminal out of the country which may enable the country earn foreign exchanges from the interested NRIs.

Meanwhile, Pawar estimated the sugar production this year at 180-185 lakh tonne this year as against 127.15 lakh tonne in 2004-05. The sugar yield per hectare is expected to grow by 5 per cent this year on the back of good monsoon this sugar year.

Since the sugar season has started with a surplus of 4.5 million tonne, the total availability is estimated to stand at 220-225 lakh tonne, as against the consumption of 195 lakh tonnne, the minister said.