The Hindu Business Line : H1 commodity futures turnover up 200 per cent

Finding levels
Full benefit of futures trading remains to be realised by smaller farmers and agriculturists.
Permitting Mutual Funds and banks to enter into commodity futures market would lead to better liquidity

Kochi , Oct. 6

The turnover at the commodity futures bourses in the country has grown by over 200 per cent till September this year.

This remarkable growth has been achieved over the 274 per cent growth recorded during 2005-06, Mr L. Mansingh, Secretary in the Ministry of Consumer Affairs said.

Addressing a press conference here, he said manipulative price rise, precipitated mainly by market intermediaries had been considerably reduced since the introduction of commodity futures trading.

However, the full benefit of futures trading remains to be realised by the smaller farmers and agriculturists, even as price volatility has been contained and price discovery mechanism has proved useful even to the Government in formulating policies and laying down future course of action.

Wheat, sugar spurt

Talking about the case of wheat, sugar and pulses he said the recent price spurt had more to do with the demand-supply mismatch rather than artificial price manipulation. In fact, the price volatility could be contained within broad limits with the introduction of commodity futures.

To a degree, spot prices and potential arrivals drive the futures prices, which in turn reduce major price fluctuations.

With the introduction of commodity futures the major price-plunge during harvest season and price-surge during the lean season of low arrivals had been contained.

Mr Mansingh, who was in Kochi to study the futures trading activities, deliveries and price discovery mechanism among the National Multi-Commodity Exchange's members said Kerala provided the ideal example where the commodity futures market had benefited the farmer and smaller cultivator.

FMC Act change

The Act to amend the FMC is before the Parliamentary Standing Committee and should be cleared soon.

The 1952 Act on commodity futures was far more advanced than that for financial sector when it was formulated, but needs major amendments in today's changed circumstances.

The primary task before the Standing Committee is to convert FMC into an independent regulator, with similar provisions that have been imparted to SEBI.

Right now, most of these powers continue to be vested with the Government, which is in turn has been delegated to the FMC, Mr Mansingh said.

He said permitting Mutual Funds and banks to enter into commodity futures market would impart it with greater depth and liquidity. However, several safeguards have to be in position before the market is opened up to these large-size investors. The RBI is studying the issue.