Business Standard: What are the most crucial issues affecting the revival of the commodity markets?
VK Aggarwal: The main issue is to increase awareness and to make the commodity markets vibrant. They must function as self-regulatory organisations. Second, there is the need to increase the number of commodities traded from the existing level of six. These two factors are the cause and effect of each other...but they must start acting independently, whereby there is parallel action at both ends.
BS: How has the scenario for commodities trading changed since the previous decade?
VKA The number of commodities where futures trading was carried out had fallen to 3 in the early 80s. One area which has not been explored by the commodity markets is the technological revolution. They have remained in their shell over the years.
BS: What steps has the FMC taken to bring in computerisation at the exchanges?
VKA: We have told them to look at the utility of change. Call it persuasion or pressure, but the exchanges have been directed to ensure that full-fledged trading ring is functioning at each exchange. Over the years, commodity exchanges have been slow in reacting to changes. Only recently have some exchanges come forward to seek assistance of the FMC in bringing this about. We would like to see that computerisation comes in phases. First, for the essential services for communication and maintainance of records, and second, to record the prices for specific contracts and ensure smooth settlement procedures. Today, a lot of this is done manually. Only the India Pepper and Spice Trade Association (IPSTA) has a computerised system...other exchanges are moving towards it.
BS: The World Bank team, headed by Lamon Rutton had argued that the open outcry system was still effective in Indian market conditions.
VKA: True, full computerised trading is to be implemented only in stage III. At present, its use would be in recording data and processing it. The exchanges should use it for clearing house operations and reporting on contract prices. They should set up independent clearing houses which can guarantee performance of contract. Once time is given for the system to stabilise, the trading system can go on-line.
BS: How has the scenario changed for the opening up of the commodity markets?
VKA: The commodity markets were placed in a deep freezer for long and the hibernation process is still not over. In 1964, there were 17 commodities in which futures trading was being carried out, but this fell to just 3 (pepper, turmeric and sacking) by 1982. Recently, some efforts have been made to revive futures trading through the international pepper exchange at Kochi. This should provide the right impetus.
BS: But political pressure continues to affect these decisions even while we have become more self-sufficient.
VKA: It is wrong to merely sweep the tensions away. It is partly true that political pressure and fear of the unknown is affecting the revival of the futures trading e>
