‘Time to align physical markets with that of futures’

Prof K.V. Thomas, Union Minister of State for Food and Consumer Affairs, has highlighted the need for alignment of physical and futures trades in the commodities markets to help farmers realise better price for their produce.

“Physical markets are tied to the soil of the land and alignment of physical markets with futures market will benefit farmers most. Futures market can serve as adjunct to the physical commodities markets,” he said.

Pointing out that commodities futures market in India are about three times the size of physical markets but more than ten times the size of physical markets in developed countries, he said physical markets are precious to our economy.

The Minister was inaugurating the ‘Stakeholder Awareness and Education Seminar’ organised jointly by the HinduBusiness Line , Forward Markets Commission and the NCDEX here on Saturday.

Commodity futures market has emerged as one of the fastest growing segments since liberalisation. The Government believes that the fundamentals of demand and supply in the physical market decide the prices of commodities and that futures market only act as a platform for price discovery and price risk management for the physical market participants, he said.

Price ticker boards

The FMC along with national exchanges is implementing a Price Dissemination Project for disseminating spot and futures prices of agriculture commodities by installing electronic price ticker boards at all prominent locations frequented by farmers and other stakeholders.

Around 1,400 price tickers boards have been installed in the 11{+t}{+h} Five-Year Plan and another 7,500 would be installed in the 12th Plan, he said.

“Large-scale presence of price ticker boards and information display about agri commodities prices would go a long way in checking information asymmetry and benefit farmers in Price Risk Management,” the Minister said.

Instruments such as warehouse receipts are very important transition to well functioning markets. The current methods of physical settlements can be replaced with settlement using warehouse receipts over a period of time, he said.

Emphasising the need to set up more storage facilities for effective delivery mechanism, the Minister said that the Government has set aside Rs 5,000 crore this year to set up small and medium godowns. The amount sanctioned last year was Rs 2,000 crore.

Speaking on the occasion, Mr Ramesh Abhishek, Chairman, FMC, said that commodities market has grown tremendously and farmers were benefiting out of it. However there is lack of awareness among potential hedgers.

There is criticism that the market is leading to excessive speculations and the FMC is trying to address all those issues. The staggered system has been introduced recently for curbing excessive speculation, he said.

Complementing the Hindu Business Line for taking a unique initiative for market awareness, Mr R. Ramaseshan, Managing Director, NCDEX, said that this is for the first time that NCDEX is partnering with a media group and the exchange hopes to take it forward.

NCDEX is looking at expanding its initiatives to several business schools in the country as part of spreading awareness on commodities futures trading, he added.

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