Cabinet to decide on commodity futures regulator

In the wake of the Left parting ways with the ruling United Progressive Alliance (UPA), the Union Cabinet is likely to clear the long-pending Forward Contracts (Regulation) Amendment Bill on Friday to give more teeth to the regulator Forward Markets Commission (FMC).

If the Cabinet approves the Bill in the forthcoming session, the regulator will be empowered to levy penalties besides getting the powers to approve options trading.

In addition, it will pave the way for the entry of institutional players like mutual funds and foreign institutional investors into the trading arena, which many believe will deepen the markets.

Similarly, the FMC will be able to decide on who can set up commodity exchanges. This is contrary to its existing role which is confined to recommending, while the government issues the orders.

Armed with the powers, including financial independence, the commission’s role and functions will be similar to the Securities and Exchange Board of India (Sebi).

The proposal to push through the amendments is the latest attempt by the Congress-led government which had to let an Ordinance lapse as it feared opposition from the Left parties, its former allies.

The government let the Bill lapse this summer when it was increasingly being blamed for allowing futures trading that many blamed for the price rise.

Since then other developments have taken place, including the report of the expert committee headed by Planning Commission member Abhijit Sen.

The committee has come down heavily on the regulator, while other panels, including a parliamentary standing committee, have said that farmers have not gained.

Though Parliament had approved a Bill for regulating warehouses and creating facilities that would strengthen the commodity futures trading, the government has not put in place a regulator.

The regulation of futures trading has also been a turf issue with the finance ministry and the consumer affairs department at loggerheads in the past. It was earlier agreed that the consumer affairs department will be the nodal agency for three years and the term ended in June. The issue of who should be in charge may also come up for discussion.

In the past, the finance ministry had batted for Sebi as the regulator. The demand has earned some support from the expert committee under economist Raghuram Rajan that favoured Sebi over FMC.