The Indian equity markets have welcomed the NDA back to power after a decade, with the BSE Sensex and NSE Nifty hit historical highs.
However, the emerging market for commodity futures continues to languish due to lack of amendments and supporting measures by the government.
The future of raw materials that were revived electronically mode from 2003 to the approvals given for new exchanges nationally have witnessed a slowdown in the last two years because of the economic weakness, global cues and the introduction of the tax on commodity transactions (CTT) at the rate of 0.01% from July 2013.
The Rs 5,600 cr NSEL payments crisis further eroded the trust of the investor community through the regulatory process, but with the recent arrests of key staff members, including Jignesh Shah, confidence in the system can be recovered.
In this context, industry of commodity futures would like the new government to be led by NDA Narendra Modi address several concerns to industry of commodity futures and markets for commodities in general.
- Changing the regulator of commodity markets, the Forward Markets Commission (FMC) the Ministry of Food, Consumer Affairs and run Public Distribution, Ministry of Finance was laudable, but in the absence of enough autonomy and independence of FMC might not be able to accomplish with its duties towards general public investor. Therefore, the passing of Forward Contracts Amendment Act by Parliament and with the electronic spot exchanges under its scope should be given paramount by the new government.
- Insufficient regulatory oversight resulted in the crisis of Rs 5,600 cr NSEL payments. Simultaneously, an efficient electronically traded and the spot exchange physical delivery can help to transmission pricing and other data to farmers nationwide in an effective manner and can act as a complement to a futures exchange well developed that focus primary is the coverage and price formation of commodities.
- Commodity exchanges in India have seen a rapid decline in trading volumes in the last two years. According FMC India, commodity trade volume declined 69% in the year to April 2014, the second year consecutive decline. In value terms, trading volume was reduced to 101.44 trillion rupees compared to 170.46 trillion rupees a year ago. Hence rupees a year there is a pressing need to rebuild confidence of investors in commodities and boost trading volumes.
- India do not have adequate stockpiling and cold storage infrastructure, which results in large quantities of processed agricultural products were damaged. Sorted by Assocham Rs 50,000 cr wheat might get lost in the lack of a policy of long term wheat exports and slow growth in the storage space.
- The PHD Chamber of Commerce and Industry had said recently that cold storages in India are designed for storage of potatoes like any other commodity. Of the 7,000 cold storages at home, 92% is destined to potatoes.Even with 100% foreign direct investment is allowed in cold storages, new investments are failing to reach in. India needs more versatile cold storages now represent only 7.63% of the total capacity.
- Well developed a futures market in commodity needs to have easy options for covering the risk of future. This service is already foreseen in equity derivatives and the government should think of those lines of commodity futures also.
- Widespread participation of mutual funds, the banking industry: With a view to boost the volume of trades and assist the growth of the futures industry, the government could consider opening up market place for investment funds and banks.
- By threatening to El Niño emerging again, prospects for a normal monsoon was below predicted by meteorologists. The agricultural sector in India still rely on monsoon and erratic weather problematic for farmers and also cause inflation levels to rise making life difficult for the majority. Therefore, new farming policies that make farming practices more watering water harvesting rain dependent and innovative should be promoted and encourage.
- Curbs import of gold and paying royalties on gold and silver have certainly shot down the current account deficit of India this year. However, the Gems and jewelry industry are aching for their inability to stock up enough gold for further processing and export quantities. The smuggling of gold is also is growing and therefore it is natural that the government reconsider relaxing import duties and other curbs. In the view of the reduction in CAD, the new government might to consider revising of import duties on gold and ease the 80:20 rule. If this happens, it will lead to reducing in the prices of gold in India, when taking into account the premium to world gold prices. This will be conducive to the Indian gold bullion Gems & Jewellery industry.
- The government needs given the highest priority to end of the impasse in the prices of natural gas. By a hand, it is necessary to give incentives new investment in this sector, but also ensure that fertilizers and chemical products industry are not prejudiced by the improper rise in prices. According to The Fertilizer Association of India (FAI) natural gas should be priced in Indian Rupee rather than dollars. The proposed price increase outlays increase sales subsidy of urea over Rs 10,000 cr annually. It will also make the fertilizer industry of India not very competitive.