The ministry of consumer affairs, food and public distribution is not in favour of commodities transaction tax as it will restrict the growth of futures market, secretary Rajiv Agarwal said today amid reports that the ministry of finance is contemplating such a move to garner more revenues.
The value of trade in commodity futures market may exceed Rs 170 lakh crore in 2011-12 from Rs 119.5 lakh crore in the previous year and Rs 66,000 crore in 2002-03, he said while inaugurating a conference organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
A parliamentary standing committee examining The Forward Contracts Regulation Amendment Bill 2010 has supported participation by banks in the sector. “Once the bill is passed, requisite statutory provisions will be put in place to ensure more effective regulation and development of commodity futures market,” said Agarwal.
This will generate greater confidence among stakeholders, encourage them to participate in futures market, improve market liquidity, strengthen true price discovery process and enhance the market’s economic utility.
Agarwal said the proposed Goods and Services Tax will help create a unified national agriculture market for the benefit of farmers, consumers, traders, hedgers and banks by curbing irregular and manipulated practices which lead to price manipulations. He said the Forward Markets Commission should revive crop-specific exchanges and ensure fair and transparent trading.
Ms Ganga Murthy, principal advisor at the department of consumer affairs, called for launching massive capacity building programmes among bankers while the Reserve Bank of India is being persuaded to permit participation of banks and financial institutions in futures market.
The development of sound warehousing infrastructure backed with a well-developed receipt system will facilitate greater integration of futures market with physical commodity market, she said adding more efforts need to be made to conduct commodity-specific research so that retailers are aware of the risks involved in leveraged trading.
About 12 per cent of trading volume in future markets is in agricultural contracts, depicting trade to be highly skewed in favour of non-agricultural commodities like precious metals.
Ramesh Abhishek, chairman of the Forward Markets Commission, said 14 lakh clients trading at national commodity exchanges indicate the increasing liquidity, depth and participation of the market.
“The participation of producers, consumers and others having exposure to physical commodity market need to increase considerably in futures market so that it functions as a tool for price discovery and price risk management.”
V.V. Sadamate, advisor at the Planning Commission, said agriculture marketing reforms and liberal bank lending will be key growth drivers as the country achieves record 250 million tonnes of food production.
ASSOCHAM past president Anil Agarwal said India is one of the fastest growing economies and well-integrated with world markets. He called for foreign direct investments in developing warehousing infrastructure across the country and bank lending to be treated at par with priority sector lending.
Others present were S.C. Aggarwal, chairman of ASSOCHAM capital markets committee, Praveen Singhal, deputy managing director of MCX, B.K. Sabharwal, chairman of the Federation of Indian Stock Exchanges, and ASSOCHAM secretary general D.S. Rawat.