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Our Bureau

Next fiscal may witness rise in trade volume, value

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New Delhi Feb. 27 At a time when political opinion against futures trading is building up for allegedly stoking inflationary pressures, the Economic Survey has put up a robust defence of the role of commodity exchanges.

While noting that prices of a commodity in the futures market might "at times" show some aberrations reacting to the element of speculation and bandwagon effect inherent in any market, they, however, "quickly revert to (the) long-run equilibrium price, as information flows in, reflecting fundamentals of the respective commodity".

The Survey has pointed out that speculators provide liquidity to futures markets and may "sometimes benefit from price movements", but do not have a "systematic causal influence on prices".

Even as pressure in mounting on the Centre to extend the ban on futures trading to more and more agri-commodities, the Survey has expressed hope that the commodity exchanges, which have seen a consistent increase in turnovers for the past few years, "may remain vibrant in 2007-08 witnessing larger volume and value of commodities traded".

Further, while gold and silver currently account for 50 per cent of trade in terms of value, the Survey expects that agricultural commodities would "gain importance helping their price discovery process and thereby providing an opportunity for farmers, traders and consumers to obtain a reasonable price".

The proposed amendments to the Forward Contracts (Regulation) Act, 1952, it has added, will strengthen the regulatory aspects and ensure orderly conditions in the commodity futures market.

Sharp increase

The total volume of trade in commodity derivatives has risen sharply from Rs 1.29 lakh crore in 2003-04 to Rs 21.55 lakh crore in 2005-06 and Rs 27.39 lakh crore during the first nine months of 2006-07. Turnover as a proportion of the country's gross domestic product (GDP) has shot up from 4.7 per cent in 2003-04 to 18.3 per cent in 2004-05 and 76.8 per cent in 2005-06. The growth in turnover has been primarily propelled by two national commodity exchanges — Multi Commodity Exchange of India (MCX) and National Commodity and Derivatives Exchange (NCDEX). Interestingly, Ahmedabad-based National Multi Commodity Exchange (NMCE) is catching up with the big two. NMCE has registered a 453 per cent jump in turnover to 1.01 lakh crore till December 2006 against Rs 18.38 crore in 2005-06.

In terms of turnover, MCX Comdex has been catching up with major global indices such as SGCI, DJAIG and RJCRB. The daily average volume of trade in commodity exchanges in December 2006 was Rs 12,000 crore.

The number of commodities traded on futures exchanges increased from 59 in January 2005 to 94 as on December 2006.

More Stories on : Commodity Exchanges | Economic Survey

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