The proposed Forward Contract Regulation Act (FCRA) Amendment Bill, 2010 may miss the upcoming monsoon session slated to start in August.
Currently the amendment Bill is being vetted by a standing parliamentary committee, which is yet to finalise its recommendations. Official sources said there were serious differences among members of the committee on various issues like futures trading in essential commodities and autonomy to the forward market regulator.
The committee plans to hold few meetings with the forward market regulator, Forward Markets Commission (FMC) to clear few queries before it finalises its report. It is difficult to arrive at a consensus if all party members in the parliamentary committee continue to have serious differences. “The members are vehemently against forward trading in essential commodities, which according to them is fuelling price rises. The FMC, on the other hand, has given umpteen examples of commodities, which are witnessing spiralling trend in prices even when they are not traded on forward exchanges”, said a source.
The committee will first have to submit its reports on the proposed amendments to the FCRA Bill. Then, the ministry of food and consumer affairs, the administrative ministry for the Bill, would put forward the report with its recommendations to the Cabinet following which the Bill would be placed for parliamentary approval.
The Bill is important for the development of the forward market since FMC, as a regulator would get autonomy and power to regulate the market effectively. New products like ‘options’ would be allowed in the commodity market.
This would benefit various stakeholders, including farmers, to take benefit of price discovery and price risk management.
The major amendments proposed in the Forward Contract (Regulation) Act 1952 {FC(R) Act} are: (a) updation of existing definitions and insertion of some new definitions; (b) changes in provisions relating to composition and functioning of FMC; (c) enhancement of the powers of FMC; (d) corporatisation and demutualisation of the existing commodities exchanges and setting up of a separate clearing corporation; (e) registration of intermediaries; (f) enhancement of penal provisions in the FC(R) Act; (g) permitting trading in options in goods or options in commodity derivatives; and (h) making provision for designating the Securities Appellate Tribunal (SAT) as the appellate tribunal for purposes of FC(R ) Act also including that of levying fee.
The Bill also provides for some other provisions such as exempting FMC form payment of tax on wealth; income and profits or gains; conferring powers upon the central government; issue of directions to FMC on matters of policy and power to supersede FMC.
The FC(R) Act provides for the regulation of commodity futures markets in India and the establishment of the FMC. While the markets have been liberalised with effect from April 2003 and modern institutional structures are in the process of being evolved, yet the market regulator, FMC is largely functioning in its traditional format. Many of the existing provisions of the FC(R) Act need changes to strengthen and reinforce legal provisions to meet the requirements of changing environment. In order to amend further the FC(R) Act, the Forward Contracts (Regulation) Amendment Bill, 2006 (the Bill) was introduced in the Lok Sabha in 2006. The Cabinet cleared the Bill in 2010.