The Hindu Business Line : Crackdown on ‘dabba trading’ in commodities

Mumbai, April 12 The commodity market regulator Forward Markets Commission (FMC) seems to have started cracking down on illegal parallel trading (‘Dabba’ trading) in commodities.

Market estimates peg the illegal operation at Rs 40-lakh-crore per annum, equivalent to the total turnover on all the commodity exchanges in the country. The trade is reportedly active in Gujarat, Uttar Pradesh, Madhya Pradesh and Punjab.

Dabba trading is done outside the exchange by some brokers who route their client’s trades (buy/sell orders). The brokers match and execute orders, thereby saving official transaction costs for themselves and their clients, though a small brokerage commission is levied.

Action taken

Speaking on the sideline of the Global Commodity Forum here, Mr B.C. Khatua, Chairman, Forward Markets Commission, said, “We have taken action against a regional exchange which was not curbing Dabba trades executed with its knowledge.” He, however, did not reveal the name of the exchange.

On the volumes involved in ‘dabba trading’, Mr Khatua said, “Your guess is as good as mine. It is as difficult as estimating black money in the system.”

The FMC chief also refused to reveal what kind of action will be taken, but said the illegal commodity trade was on the decline.

“Higher the tax rate, higher the chances of evasion. Similarly, harsher the punishment, more the tendency to abide by the law,” he said. The national commodity exchanges claim that the imposition of the proposed transaction tax will lead to Dabba trading.

Turnover fallING

Turnover on national commodity exchanges has been falling ever since the Finance Minister, Mr P. Chidambaram, announced a 12-per cent service charge and a transaction tax of 0.017 per cent on transactions in the exchanges in the Budget.

In April, the turnover on MCX has fallen 15 per cent to Rs 12,448 crore; while in NCDEX, it was down 14 per cent to Rs 2,318 crore.

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