Commodities

A welcome Budget for commodity market

RAJALAKSHMI NIRMAL | Updated on January 27, 2018 Published on February 29, 2016


The change

There were many announcements in the Budget that were favourable for the commodity market. The Finance Minister also announced a common e-platform for farmers for 585 wholesale markets. For commodity traders, the icing on the cake came in the form of the proposal to announce new commodity derivatives by SEBI. The common man will get a reprieve on soaring prices of pulses with the allocation of ₹500 crore for pulses production under National Food Security Mission. The Finance Minister has also indicated that ₹900 crore will be set aside towards a price stabilisation fund to check unwarranted price increases.

The background

The Indian commodity market is currently in shambles. The National Spot Exchange fiasco, the slow developments after the SEBI-FMC merger and the continued distress of farmers due to poor supply chain infrastructure have all added to the problems. Setting up of NAM was approved by the Cabinet Committee on Economic Affairs in July last year. With a budget of ₹200 crore, the scheme was to be implemented over the next two years, covering 250, 200 and 135 mandis in the first, second and third year respectively.Currently, farmers sell all their produce to commission agents authorised by the APMC (Agriculture Produce Market Committee) in their area. But, with the new e-platform, they can reach buyers across the country and get a better price. Also, there is no check on hoarding now as agri markets are fragmented. However, with the common national platform, data dissemination and transparency will seal leakages from the system. The success of Karnataka in establishing a State-wide market place is a case in point. The Karnataka government along with NCDEX Spot Exchange developed a e-platform for its APMCs through Rashtriya E-market and Services in 2014. Today, the platform connects 100 plus APMCs (of the total 157) and benefits farmers of the State by getting them better price and improved transparency in transactions.

The verdict

The clean-up in the commodity market is finally happening. With the regulator SEBI being asked to introduce new instruments soon, the market will see its liquidity improve. If liquidity improves, all commodity producers can return to the Indian commodity exchanges for hedging price risks. The common e-platform for farmers, in addition to getting them a good bargain, will also reduce their cost of selling, thus, indirectly offering relief to the common man. Currently, APMCs levy multiple fees. For instance, in wheat, the levies as a percentage of MSP go as high as 14.5 per cent (in Punjab). The other positive in a national level agri market is that it can help give direction to prices for the futures market and control wild price swings. Today, without an underlying market, futures prices are driven merely by speculation in most commodities. Once a national level agri market is established, price discovery will happen transparently.

Published on February 29, 2016
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