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Finance Minister (FM) P Chidambaram on Monday supported reforms in commodities markets while presenting the interim Budget for 2014-15. However, the jewellery sector, expecting a cut in the duty on gold imports and a relaxation in import norms, was disappointed. Gold prices on the Multi Commodity Exchange (MCX) rose two per cent.
The FM claimed credit for fully deregulating the sugar sector. In May, the government had rolled back some controls. However, the cane price is still based on what a state decides. A mill has to buy from a designated area. Also, there are distance specifications between two mills.
In the morning, the jewellery stocks were up two-five per cent. But soon after the speech, the stocks gave up the gains. Prices closed marginally lower on Friday’s closing.
But the gold price jumped Rs 400 per 10g on the MCX after the speech. In the evening, it went up Rs 600 at Rs 29,958 per 10g and in the international market $8-9 since early morning to $1,326 an ounce. In the Mumbai physical market, it closed at Rs 31,085 per 10g, Rs 470 higher from Saturday. Silver went up two per cent on the MCX, while in the Mumbai market it closed Rs 1,550 higher at Rs 48,700 a kg.
Service tax exemption to rice storage
The FM gave a small but important relief on rice. “Storage of paddy was excluded from service tax. Rice was not. I propose to exempt loading, unloading, packing, storage and warehousing of rice from the tax.”
Status quo on CTT
The FM chose to ignore the commodities derivatives markets regulator Forward Markets Commission (FMC)’s view to expand the list of commodities exempted from the commodities transaction tax.
Changes to FCRA
The FM supported reforms in the commodities markets without specifying anything other than changes in the law governing commodities futures, the Forward Contracts (Regulation) Act, or FCRA. If changed, options and index trading could begin. These could be used as better hedging tools and for developing the market.
What FM didn’t clearly mention was whether the FMC would retain its independent status. Amending the FCRA would mean the FMC would remain independent. But he said the views of the Financial Sector Legislative Reforms Commission (FSLRC) be implemented. This means there would be a financial super-regulator. All, including the FMC and capital markets regulator Securities and Exchange Board of India, would come under it.
All these may happen only when the next government forms. However, the FMC has already started aligning and converging its norms with the securities market’s.
