Bright future for Futures

The volume of trade in commodities futures has grown manifold in the three years since the United Progressive Alliance assumed power at the Centre. In 2006-07, the growth was 70 per cent. The value touched $1 trillion.

However, the government's performance in this area leaves much to be desired. The ban on the futures trading in certain essential commodities and the inability to pass the bill to amend the Forward Contract Regulation Act did not help.

Earlier, the BJP-led government had issued licences to three exchanges to start online nationwide commodity exchanges: MCX, NCDEX, and NMCE.

MCX is positioned as an exchange for commodities having global references like metals, soya etc. NCDEX is known as an exchange for agricultural commodities though it is now also focusing on bullion trade. NMCE is recognised as an exchange for plantation commodities and spices.

Despite the remarkable growth in volumes and the number of participants, the UPA government has to take the blame for its failure to provide teeth to the regulator "" the Forward Market Commission (FMC).

India is traditionally known for its leadership in agriculture commodities. For the futures market, a hedging mechanism in agri commodities was important. But the government banned futures trade in pulses, tur, urad, wheat and rice.

The reasons were not clearly spelt out, but understood to be the rampant speculation in these commodities, resulting in an increase in the open market prices of these commodities.

The move resulted in reduced turnovers on the exchanges. "The market needs continuous innovations and falling volumes need support," said the chief of a leading institutional commodity brokerage house.

Two Parliamentary committees have objected to futures trade in essential commodities. The last committee cleared the Bill to amend the FCR Act. The amendments include more powers for FMC and making it autonomous. The Bill is still pending with the government.

The delay is proving costly. The Percy Mistry committee on making Mumbai a financial hub has said in its report that "commodity futures lack regulatory credibility required to attract national or global customers".

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THE MOVEMENT

FORWARD

Sharp surge in trading volumes

BACKWARD

Government has not given much-needed powers to the regulator

No FDI guidelines issued for commodities exchanges

The ban on some futures was ill-advised