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Suresh P. Iyengar

Mumbai, Dec. 25 It was an eventful year for commodity exchanges. NCDEX faced a setback due to a ban on wheat, rice, urad and chana. Its Managing Director, Mr P.H. Ravi Kumar, spoke to Business Line on various developments.

On reports of high attrition, especially at senior levels?

I neither want to confirm nor deny the reports. NCDEX is a large institution and such things have little impact.

How has the year 2007 been for commodities?

It has been a difficult year, particularly for the agricultural segment. It began with the delisting of tur and urad contracts in January 2007, followed by wheat and rice in February 2007. A series of measures like imposition of curbs on open interest positions and hike in margins constricted the market growth. The market actually started decelerating. March 2007 saw the appointment of the Abhijit Sen Committee to study whether inflationary pressures in commodity prices are caused by commodity futures trading. The report, originally slated to be submitted by May 14, 2007 is still awaited. Post delisting of four commodities, there was a sharp run-up in their prices. Obviously, the price rise cannot be attributed to trading on the futures exchanges.

Impact of Government policies on the exchange?

Almost all measures were negative for the sector which has seen a flight of trading capital either away from agricultural commodities or altogether from commodity exchanges, particularly to the stock markets. Inability to get the Forward Contracts Regulation Act, a 1952 Act, amended is a major setback. The amendments are still awaiting Parliamentary approval. The domestic and international shareholding policy for commodity exchanges is still to see the light of day. It is almost a year since the same for stock exchanges was announced. The policy stance on Foreign Institutional Broking houses participation in the commodity markets is still awaited. Issues on domestic banks and mutual funds participation is yet to be sorted out. Guidelines for Portfolio Management Scheme structures involving commodities are still to be announced. It is no surprise that the volumes on exchanges have begun falling for the first time since 2003 in 2007. The only silver lining is the adoption of the new comprehensive Warehousing Act. The rules and regulations there under, and the notification of the regulator are two steps that need to be taken immediately.

Expectations for 2008?

The policy flip-flop and interference with market mechanisms will have to stop. The Exchanges will grow only when there is clarity on policy structures and stability in regulatory structures. Otherwise, risk capital will get allocated to other asset classes offering decent returns. Once the Forward Contracts Regulation Act is amended options, indices, carbon credits etc are allowed to be launched on exchange platforms. Also, banks, mutual funds and other key participants are allowed to participate in these markets so that there is breadth in participation. All the unfinished policy measures need to be quickly addressed in 2008, particularly before the first quarter is over.

The turnover on NCDEX has taken a beating. What measures are being taken to revive the business?

The commodity futures markets are in the process of being built up and I would believe these are the growth pains that will have to be necessarily gone through. We are trying to broaden the base of volumes into other areas without losing the leadership that has been built in agricultural commodities.

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