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Commodity exchanges expressed relief at Union Finance Minister Arun Jaitley saying no ban was being considered on forward and futures trading in any commodity.
There had been rumours for a couple of days to the contrary. The government had banned such trades in sugar and wheat in 2007, restoring these in 2009. A ban levied in 2007 on certain varieties of pulses continues till now.
“Stakeholders got scared of rumours spread by vested interests, as futures trading in certain commodities were banned in the past. The FM’s statement offers relief to not the comexes but to all stakeholders in futures trading,” said Anil Mishra, managing director (MD) of the National Multi Commodity Exchange. Adding: "Nobody would make a huge investment in infrastructure if they are unsure that the commodity futures market is here to stay. This assertion from the FM would give a needed stability and boost to the market.”
Last year, total turnover of comexes was around Rs 100 lakh crore, of which farm products were 15 per cent. Including dabba trading (transactions outside the exchange, with benchmark price reference from the latter), the total volume of forward and futures contracts could be three to four times more.
P K Singhal, joint MD, Multi Commodity Exchange, said: “This would boost the confidence of commodity market participants. We hope the government continues with its market-friendly policy stance and implements other long-pending policy reforms that the commodity market is urgently in need of, such as the amendment of the Forward Contracts (Regulation) Act, 1952, and either removal of the commodities transaction tax or its reduction.”
The purpose of comexes is to provide a centralised marketplace where commodity producers can sell their produce to buyers, for manufacturing or consumption. Comex auctions are meant to guarantee transparent competition, with exchanges to ensure a buyer for every seller.
“The statement came as a confidence booster, which reinforces that we are on the right track. This reinforces us to continue developing the commodities futures market,” said Samir Shah, the MD of National Commodities & Derivatives Exchange.
Madan Sabnavis, chief economist with CARE Ratings, says futures trading is required for hedging and investment.
“The former is important as a large part of our gross domestic product — 14 per cent of agriculture and 30 per cent of industry (including construction) are commodity-based. While the Reserve Bank has been exhorting companies, to hedge their forex risk, they are not doing so for commodities; these prices can change significantly. As far as investment is concerned, commodities are a very good option, with debt and equity,” he said.
