Markets wait for fine print on commodity exchanges

The budget of 2005 promises to be watershed budget for its rural development and tax reform initiatives and its consequent impact on agricultural output and the development of a market in agri-produce and all commodities in general.

The Bharat Nirmaan programme will extend irrigation, reach electricity to 1,25,000 villages and telephone connectivity to 66,822 villages.

It envisages a roadmap for agricultural diversification with focus on fruits, vegetables, flowers, dairy, poultry, fisheries, pulses and oilseeds.

Besides, a National Horticulture Mission with corpus of Rs 630 crore in 2005-06 will cover research, production, post-harvest management, processing and marketing in an integrated manner.

Lower duties on metals and lower import duties on a range of commodities will translate into lower input costs for user industries and a boost trading in spot and futures markets in these products, said market sources.

A new scheme for development and strengthening of agricultural marketing infrastructure, grading and standardisation is to be introduced to induce investments from private and cooperative sectors for setting up agricultural markets, marketing infrastructure and support services such as grading, standardisation and quality certification.

It is to be implemented through Nabard and NCDC in those states which amend their APMC Acts.

A knowledge centre in every village by August 15, 2006, will provide price discovery and market participation infrastructure to every rural community in the country.

Value addition will be aided by the duty cut on refrigerated vans from 20 per cent to 10 per cent.

The commodity exchanges though were cautious in their response, saying the Union budget would impact commodity trading positively but had few direct steps to boost trading.

P H Ravikumar, CEO and managing director of National Commodities and Derivatives Exchange of India (NCDEX), said, "It is not clear if the proposed amendment to the Banking Regulations Act would cover permission to banks to enter commodity areas. Likewise it is not clear if changes in the Income Tax Act, whereby speculative gains on exchanges would be allowed to be set off against business losses would be extended to cover commodity exchanges also. We do sincerely hope that the proposed changes would encompass the commodity segment."

He commended the focus on developing a system of standards and grades.

Multi Commodity Exchange (MCX) managing director Jignesh Shah said rural infrastructure development would create the foundation for futures trading in commodities.

Ravikumar felt cotton should have been included in the list of identified sectors, along with edible oils, pulses and fruits, for agricultural diversification.

Telephone connectivity and a knowledge centre at every village would permit every farming community to access information and enable price discovery.

The Banking Regulation Act would be amended based on the responses from the banking companies and if banks can trade in commodities, it will deepen the market, said Shah.