Commodity futures market set to touch Rs50 trillion

Commodity futures market set to touch Rs50 trillion

New Delhi: India’s commodity futures market is set to end 2008 with a record turnover of Rs50 trillion, an impressive 40% surge from a year ago, despite the ban on trading in a number of commodities, high inflation and political hurdles.

Enthused by the continuing boom in this market, which experts say is still at a nascent stage, the year saw many new players entering the fray, including Reliance-Anil Dhirubhai Ambani Group, or R-Adag, Kotak Mahindra Group, Indiabulls Group and also public sector entity MMTC Ltd.

At the end of November, the total turnover at the country’s various commodity exchanges totalled Rs46,65,295 crore, which experts expect to grow past Rs50 trillion when the figures are published for the current month. In comparison, the total turnover for 2007 stood at Rs36,53,895 crore.

The year started on a good note when the Centre came out with an ordinance to amend the Forward Contract Regulation Act to give more power to the commodity market regulator Forward Marketing Commission, or FMC.

But the United Progressive Alliance, or UPA, government was unable to pass the Bill in Parliament due to opposition from various political parties, and the ordinance lapsed.

The Centre also suspended futures trading in soya oil, rubber, chana (chickpea) and potato in May this year, initially for four months, and then extended till November.

The trading has been allowed from the start of this month only after inflation came down, though the ban on trading in wheat, rice, tur (pigeon pea) and urad (black matpe) imposed early last year continues. The decision to impose the ban was taken under pressure from political parties, particularly the Left.

The Centre had set up a committee under the chairmanship of Planning Commission member Abhijit Sen in March 2007 to study the impact of futures trading on prices of agricultural commodities. The much-awaited report was finally submitted in April this year. As a result of the ban, trade in agricultural commodities was badly affected, but the total turnover of the futures market rose at a decent pace. The government data shows that there has been a nearly 32% drop in business volume of farm commodities till November in the current fiscal.

Had it not been for high inflation, the growth of the futures market would have been higher, analysts say. “Undoubtedly, there would have been more volumes if there were no ban," said ARPL Agri-Business Services managing director Vijay Sardana.

The turnover of leading agri-commodity bourse National Commodity and Derivatives Exchange Ltd (NCDEX) dipped sharply to Rs5,98,257.42 crore in 2008 (January-November) from Rs7,33,478.87 crore a year ago.

On the other hand, turnover of the Multi Commodity Exchange of India Ltd. (MCX), which has a market share of 85-90% in the commodity futures business in India, soared to Rs39,56,459.12 crore from Rs25,04,904.21 crore during the period under review.

The futures market also remained in the news because of commodity transaction tax proposed by the Centre in the Budget for 2008-09, though the finance ministry is yet to notify it amid opposition from stakeholders.

Robust growth of the commodity exchanges spawned increased interest from companies such as Reliance Money, Kotak, MMTC and Indiabulls.

While MMTC and Indiabulls formed a joint venture to set up a fourth national commodity exchange, which is expected to be operational early next year, R-Adag’s Reliance Money picked up a stake in the National Multi-Commodity Exchange of India Ltd (NMCE) and Kotak Mahindra Group in the Ahmedabad Commodity Exchange.