With the Bharatiya Janata Party-led National Democratic Alliance set to form a government at the Centre, the commodity derivatives market is expecting major developments, including stability in prices and reforms in agriculture marketing. It is also expected the Forward Markets Commission (FMC) will be strengthened.
The BJP’s election manifesto said the party’s priorities included setting up a price stabilisation fund, evolving a single national agriculture market and reforming the Agriculture Produce Marketing Committees (APMC) Act. “Amendments to the Forward Contracts Regulation Act (FCRA) should be the top priority, as a scam in the commodity market has already broken out, and this shouldn’t be repeated,” said Sameer Shah, managing director of the National Commodities and Derivatives Exchange.
The commodity futures market, in its current form, was first allowed by the BJP-led government in 2003. Therefore, it is felt amending the FCRA and strengthening the FMC, the market regulator, is the next logical step.
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The price stabilisation fund could be on the lines of the one in China, where the state reserve bureau buys and sells commodities. However, the purpose of such a fund could be to stabilise prices only if introduced in India, unlike China, where the bureau buys all commodities, including non-agricultural ones, and stores these for years. In India, state agencies such as the Cotton Corporation of India and National Agricultural Cooperative Marketing Federation have been doing this, subject to allocation of funds for cotton and oilseeds, respectively, by the Centre. Three years ago, the Planning Commission had proposed such a fund, but the proposal wasn’t accepted.
Three years ago, when prime minister-designate Narendra Modi had set up a chief ministers’ committee on agricultural marketing reforms, he had recommended a national agricultural market and, therefore, this seems to be a priority for the next government. Sameer Shah said the government must clearly state what it meant by a single national agricultural market.
The head of a commodity exchange said different norms at the state and central levels weren’t allowing seamless trading in many agricultural commodities. For instance, stock and licensing limits are different across states. On the national commodity exchange, delivery is decided by sellers; buyers have to accept deliveries wherever sellers offer. If the buyer is not licensed to trade in the state in which a delivery is offered, or the stock limits are lower than his purchase, it leads to hurdles. There is a need to streamline these issues in the national single market for agricultural commodities.
Chairing the chief ministerial committee in 2011, Narendra Modi had recommended, “Considering the lack of strong linkages between the spot and futures markets, for the time being, essential commodities (food grains, pulses, edible oils, etc) should be kept out of the futures market.”
Sameer Shah said, “Now, linkages between spot and futures in commodities such as edible oils have improved significantly; this is the time the government should clearly support the futures market and declare no commodity will be delisted from trading in the futures market.”
If FCRA is amended, more reforms could be introduced, including index futures and option trading.
