The Hindu Business Line : US consulting firm makes out case for FDI in commodity bourses

Mumbai, Nov. 2 Even as the country’s policymakers are mulling whether or not to allow foreign direct investment (FDI) in commodity futures exchanges, comes a report from Financial Markets International (FMI) making out a case for allowing foreign ownership of commodity bourses.

Pointing out that economic development is enhanced by a nation’s capacity to acquire more capital, adopt international best practices and engage in knowledge transfer, the FMI has cautioned that continued delay on the part of the Government could lead to a loss of Indian opportunity to China. In a review of the comparatively open investment policies of developed and developing nations regarding foreign investment in commodity and securities exchanges, the US-based international consulting firm points out that these countries typically permit substantial foreign ownership in exchanges, commodities or securities, and uniformly permit identical rule applicable to ownership stakes in both securities and commodity exchanges. According to FMI, the benefits to nations that permit foreign investment are significant in terms of economic growth, employment and related infrastructure development.

In developed economies, commodities futures trading is commonly 10 times the size of the cash market in commodities. Globally, commodities futures markets are three to four times larger than the stock markets. Commodity exchanges serve as catalysts for the development of marketing services through assembling, warehousing, financing, pre-processing, transportation and merchandising, besides assisting in price discovery and price risk management, the report pointed out. In India, commodities-related industries, including the agriculture sector, constitute an estimated 55 per cent of the country’s GDP.

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