Sen panel for warehouse receipts, spot exchanges

The Abhijit Sen committee on commodity futures is expected to recommend measures that benefit farmers such as warehouse receipt financing and setting up of national spot exchanges.

The committee is set to submit the long-awaited report after the current parliament session.

The committee was set up in the first week of March this year to suggest measures that would help farmers benefit from commodity futures and get a fair price from futures trading. The committee is working on the two aspects of popularising the use of warehouse receipts and the setting up of national spot exchanges.

When contacted, the chairman of the committee and the Planning Commission member, Abhijit Sen, said, "Our focus will be to see how farmers benefit from futures trading in commodities."

According to sources, warehouse receipts are an important instrument for farmers that would enable them to receive bank loans for up to 80 per cent on commodities deposited in warehouses recognised by commodity exchanges.

Agencies such as marketing federations or co-operatives can hedge these commodities on the exchange as per contract norms. Currently, RBI does not allow banks to directly hedge on the behalf of farmers.

The farmers will be paid the balance amount when the commodity is actually sold on the exchange. Since these commodities will be in a exchange-recognised warehouse, delivery as per quality norms is guaranteed.

Since farmers will find it difficult to hedge directly on the exchanges, banks or agencies can hedge on their behalf acting as aggregators.

The committee may also look at turning warehouse receipts into a negotiable instrument. This process could gain momentum when the government appoints a warehouse regulator as per the new Warehousing Act, passed recently by the parliament.

The committee will ask the government to speed up the process as regulations for warehouses are crucial for eliminating warehouse receipt frauds.

The committee is also in favour of setting up national spot exchanges as it would help farmers to sell their produce at an optimum price in a transparent manner.

It would also look into the problem of regulating the exchanges as agriculture marketing is a state subject, while commodity futures are regulated by the centre and the Forward Markets Commission.

Though both the major commodity exchanges, MCX and NCDEX, have set up spot exchanges, no significant progress has been achieved so far. The Sen committee may ask the government to clarify on relevant issues for making the exchanges operational.

Since the government has not asked the committee to give their views on resuming futures trading in delisted commodities, it may prefer to remain silent on the subject.