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Commodity futures are an economic tool. A cut in the cost of hedging, reduction of Commodity Transaction Tax, and broadening participation from banks and FPIs (Foreign Portfolio Investors) will help in strengthening the commodity markets.
Crop inflow into transparent and regulated warehousing networks can be encouraged, with the exemption of the 450 exchange-accredited warehouses from Stock Control Order under the Essential Commodities Act. Additionally, inventory financing and warehouse-receipt lending should be encouraged. A default guarantee structure under WDRA (Warehousing Development and Regulatory Authority) can give a fillip to agriculture financing.
Intra operability between the NAM (National Agriculture Market) and State markets is another crucial area. Some States have taken a leaf out of the successful Karnataka model and embarked on modernisation of their primary markets. In view of the enormity of the task, a multi-agency approach at the State level, with a clear roadmap of integration of the State markets with the national market, would be a far effective solution.
Giving farmers access to national regulated markets such as futures and forwards, online national agricultural market, providing access to finance, and improving post-harvest infrastructure is critical.
Commodity exchanges were set up with the prime focus of helping farmers; however, they have seen almost negligible direct participation by farmers.
This has changed in the past year. Our focussed efforts in educating farmers and hand holding Farmer Producer Companies (FPCs), about using futures to lock prices and hedging, is beginning to show encouraging results. More than 19,500 small and marginal farmers have successfully hedged their crops on NCDEX in the past 10 months through 10 FPCs.
Reintroducing forwards on commodity exchanges with additional safeguards and introducing farmer-friendly options will help give farmers some of their lost power.
Under the SEBI guidance, the commodity markets now have a strong foundation. The past year has seen a continued focus on strengthening risk management, surveillance and corporate governance. The stage is now set for a developmental push with new products such as options, new services such as the proposed WDRA regulated repository and new market participants.
(The writer is Managing Director and CEO, NCDEX)
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