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Indian commodity players concerned over delayed reforms

Indian commodity players concerned over delayed reforms
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First Published: Mon, Sep 24 2007. 04 35 PM IST
Updated: Mon, Sep 24 2007. 04 35 PM IST
Mumbai: A delay in a legal amendment giving more teeth to the commodities regulator and quickening growth of a nascent Indian commodity futures market could stop many from entering the market, analysts and market players said.
The Forward Contracts (Regulation) Amendment (FCRA) Bill, 2006, which was scheduled in the monsoon session of Parliament, is delayed and is now likely to be taken up in the winter session, said a senior official in the Food and Consumer Affairs ministry.
The Bill is the second major reforms proposal for commodity futures market after futures trading was launched in 2003.
Similarly, a committee, set up under the chairmanship of Planning Commission member Abhijit Sen to study the impact of futures trading on retail agriculture prices, has not submitted its report and is seeking extensions after its term expired on 2 May.
“This is not a good sign. India’s fast economic growth can’t do without a developed commodity market for long,” said Avinash Raheja, senior vice-president, Commtrendz Risk Management Services.
India does not allow trading in commodity options and non-deliverables and has banned some grain futures early 2007. The FCRA Bill and Abhijit Sen report address these issues.
“This delay will stop many participants from entering the market,” said V Shanmugam, chief economist, Multi-Commodity Exchange of India Ltd, a commodity futures exchange.
Elusive options trading
“Many traders and farmers would have entered the market if there had been ‘options’ trading available,” said Madan Sabnavis, chief economist, National Commodity & Derivatives Exchange.
The FCRA bill has provisions for allowing options trading in commodities that would reduce the risk for the players and encourage more participation, said analysts.
Options offer buyer the right, but not the obligation, to buy or sell a contract at an agreed-upon price during a certain period of time or on a specific date.
“Many commodities are non-deliverable but have greater role in bringing economic stability than the deliverables, said Shanmugam. “For example a rain index is a great tool to manage risk, both for farmers and the agriculture-based industry.”
A sugarcane farmer can decide on sowing, tracking the rain index, while the sugar maker could decide on procurement, said Shanmugam. Oilseed, grain, shipping indices, etc. will help the industry and traders to hedge against risk, said analysts.
“Indian commodity exchanges have started well, but myopic policy decisions will hurt,” Raheja said.
“The delay might hurt our industrial growth and regional supremacy in commodities trading and China is developing their commodity markets faster than us,” he said.
“We are looking forward to the amendment. Once the bill is passed it should take two to three months to implement the regulations fully,” said B.C. Khatua, chairman, Forward Markets Commission, the regulator.
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First Published: Mon, Sep 24 2007. 04 35 PM IST