The finance ministry seems to have changed its stand on regulating commodity futures. The ministry has proposed that the commodity futures market regulator, the Forward Markets Commission (FMC), can remain independent for the time being. It was earlier insisting that it be merged with the capital market regulator, the Securities and Exchange Board of India (Sebi).
The ministry has, however, proposed that FMC report to it and not the consumer affair ministry, as is the case today. The latter has opposed the proposal. At a recent meeting between officials of the two ministries, the finance ministry put forward the reports of two committees on financial sector reforms recommending that commodity futures be regulated by Sebi.
The consumer affairs ministry, on its part, said that markets regulated by Sebi and commodity markets were fundamentally different. In equities, price movements were not a cause for concern for the regulator, while sharp movements in commodity prices hurt one stakeholder or the other, that is, the user or the producer.
Ensuring price stability of agriculture commodities is the main objective of the consumer affairs ministry while controlling inflation is the main worry of the finance ministry at the moment. The argument put forward by the consumer affaits ministry was that if both functions (ensuring price stability and controlling inflation) were under the finance ministry, any mistake in judgement would impact price stability. It said the two policy regulators could point out each other’s mistakes as the consumer affairs ministry did in the case of the finance ministry’s proposal to imposes a commodity transaction tax (CTT). CTT was ultimately removed from the statute book.
A source said as there was no common ground between the two, it seemed unlikely that the proposal would find takers. Hence, FMC might continue to remain independent in the near future, he added.
