While the Prime Minister's idea for the key post in Uttar Pradesh
is making waves, his choice to lead the securities market has started work. Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi
has begun his tenure by laying out an agenda for the commodities derivatives market, the latest addition to the regulator's portfolio.
Given the government's increasing focus on agriculture
and determination to improve the livelihood of farmers, Tyagi finds himself at the centre of a massive reform process the PM has in mind for the agricultural produce market. Tyagi's prepared speech at the Commodity Participants Association of India (CPAI) event over the weekend suggests he appreciates this larger picture and is keen to move forward.
Though getting farmers
their due through easy and transparent access to the market has been talked about for decades, there were multiple blockades on this road. The commodity derivatives market itself was functioning with an inadequate regulatory infrastructure. Second, agriculture
being a state subject, the localised mandis, the politics of minimum support price and trading interests have weighed heavily on what is known as the 'spot market'.
An earlier attempt to modernise went horribly wrong. However, the payment crisis at the National Spot Exchange (NSEL) in 2013 had triggered a set of reforms that could not happen earlier. The first of these is merger of the erstwhile Forward Markets Commission (FMC) into Sebi, a more advanced regulator and having accumulated significant institutional capacity and knowledge over three decades in modernising and regulating the equities market.
Second, following the launch of e-Nam (National Agricultural Market), the government has aggressively worked on getting the 550 large wholesale markets (mandis) across the country to sign up. Around 200 have come on board and more are being coaxed.
However, people who work on the ground say on-boarding still does not do away with the requirements of physical mandis. It is still like a bank branch whose internal systems are computerised but the customer still has to visit the branch to get his business done.
Another weak link is the warehouse. There are thousands of warehouses still outside the regulatory mechanism. If the PM's dream has to be achieved, these need to be cleaned up, enlisted and regulated.
To create a national agricultural commodities market in its true sense and integrate it with the derivatives market, an effort on the line of what it took to create the goods and services tax is needed. The situation could be compared to the time the National Stock Exchange (NSE), that heralded screen-based online trading of dematerialised shares, was being launched. That was when regional stock exchanges ruled the roost.
Meanwhile, the NSE whistleblower is back and is now alleging that the systemic issues allegedly found in the high frequency trading (HFT) platform of the equities market are also prevalent in other trading segments, including commodity derivatives. The NSE episode exposed the lack of institutional capacity in Sebi
to probe and decide on advanced technology-related irregularities. Sebi
did an FMC, which referred the probes into the MCX and NSEL episodes to outside agencies, by referring the HFT probe to an external agency. The controversy has given rise to a significant debate on how to safeguard small entities from high technology that is neither affordable nor accessible for them.
There lies the great paradox Tyagi and Sebi
need to grapple. On the one hand, they need to spend resources to bolster capacities and try to keep in step with complex technological advances in trading. On the other, they need to keep things simple and accessible enough so that the farmer they so want to enrich doesn't get ripped off.