The Economic Survey
for 2014-15 presented today belies the widespread belief in the commodity derivatives
market that its regulator, the Forward Markets Commission (FMC), was likely to be merged with capital markets regulator Securities and Exchange Board of India (Sebi).
The survey categorically says: “To to provide efficient advance price-discovery to farmers and enable them to hedge price risks the Forward Markets Commission is being strengthened.”
The issue of strengthening the FMC
has been around for a long time; however, the new NDA government has so far not taken any noticeable step in this direction since it would first need to amend the Forward Contract Regulation Act.
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Past experience suggests that there is no political consensus for amending the FCRA, even though there is a broad understanding among political parties that the commodities regulator’s hands need to be strengthened.
However, the Financial Stability and Restructuring Commission (FSLRC) suggested merger of financial markets’ regulators which, if implemented, would necessitate a FMC-Sebi
merger. Sources said the discussions among finance ministry officials have already begun in this direction.
The Economic Survey, however, has not given any direct indication for merger but instead called for further strengthening of the FMC.
Addressing concerns that there may be unnecessary speculation in commodities, especially agricultural commodities, the Survey noted that “it should be addressed though more effective regulation along the lines of the recommendations made by the Financial Sector Legislative Reforms Commission (FSLRC).”
At the same time, despite the Survey clearly saying that the FMC
is being strengthened, the reference to addressing excess speculation in the market as per recommendations of FSLRC has raised speculation that the merger of the two regulators may not entirely be off the table.
Sources familiar with the development said that the Finance Ministry is working in the direction of merging the two regulators; Sebi, however, is not in favour of regulating the commodities market.
Even if the merger happens, said a source, “It will be a long drawn process as most likely the proposal will go to Standing Committee under Ministry of Finance which will deliberate the issue in length and hence the implementation may take even a year.” Until then, though, the FMC
will continue to find backing from the Finance Ministry, he added.
In its section relating to commodity futures, the Survey has favoured stronger regulator without specifying who it would be.
“In order to ensure that forward markets in commodities are well regulated and the Indian commodity futures market is compliant with international regulatory requirements, the regulatory framework for the commodity futures market needs to be strengthened at the earliest,” the Survey notes.
Jayant Manglic, president Religare Securities said “One thing is clear that the survey supports stronger regulation for commodities and it also suggest that commodity derivatives
market will grow and expand further.”