The Hindu Business Line : Changes in commodities Act may squeeze bourses

The passage of amendments to the Essential Commodities Act by the Lok Sabha on Wednesday might further squeeze turnover on commodity exchanges if the State governments decide to lower individual stock limits on commodities. Armed with the Union Government's directive, the State governments have imposed individual stock limits on wheat and pulses to rein in prices.

The States can now alter stock limits on a regular basis to check hoarding and rising prices. "The exchanges have already taken into account the impact of the Act as stock limits have already been imposed by the State governments. The problem will arise if the States lower the limits further," said Mr Ajoy Pathak, Associate Vice President, Kotak Commodities.

Though the State governments placed stock limits on wheat and pulses, prices that were corrected in the short term bounced back.

"Prices will not come down unless and until liquidity improves. For instance, wheat prices came down in Delhi, Mumbai, Uttar Pradesh, Karnataka and Andhra Pradesh after the governments imposed stock limits. But they bounced backed quickly as supplies dried up. The imposition of stock limits can only be a short-term measure," said Mr Sushil Sinha, regional head, Karvy Commodities.

Awaiting clarity

Agrees Mr Ravindra Sachdev, head of legal affairs in NCDEX. "We are waiting for more clarity on the Act as there are legal issues which need to be clarified. But definitely the business might be affected if the state governments lower the limits further," he said.

Trading on commodity markets turned bearish when the news hit. Prices of almost all the pulses plunged. Chana futures on NCDEX lost Rs 69 per quintal at Rs 2,794; urad, tur and guar seed followed suit. The commodity market regulator, Forward Market Commission (FMC), has already imposed tough individual stock limits on traders, cutting into trading on the exchanges. FMC also alters margins on individual commodities on a daily basis to restrain volatility.

Prices in futures and spot of some essential commodities such as urad, chana, tur, maize, chilli and wheat have appreciated more than 50 per cent in the last two months. Various government measures have not been able to contain prices, indicating short supplies of essential commodities, say traders.