A year after introducing a transaction tax on non-farm futures and witnessing the worst settlement crisis in the spot market, the government on Thursday almost gave the commodity markets a notable miss with no worthwhile announcement. While the Budget's focus on farming and warehousing would strengthen the primary agriculture market and aid the functioning of the spot and futures markets, analysts said finance minister Arun Jaitley has refrained from addressing any of the vexed issues.
The Budget is silent on the FCRA Bill 2010, which provides for autonomy to the Forward Markets Commission and launches of options and derivative products. It was cleared by the Cabinet last October after being stuck for long, while the imposition of bans on some farm futures periodically on the pretext of curbing inflation fed regulatory cynicism and discouraged investment.
In the interim budget in February, then finance minister P Chidambaram had said: "I propose to amend the Forward Contracts (Regulation) Act to strengthen the regulatory framework of the commodity derivatives market." However, the bill has been hanging fire since. The finance minister also skipped any mention of the National Spot Exchange, which faced the R5,600-crore settlement crisis last year, with its promoter still in judicial custody and the probe still on.
Although the government can clamp down on futures trading any time, the Budget's silence on the issue added to the market's apprehension. The Left parties have been demanding a ban on futures trading of farm items, blaming it for high food inflation, but what caused even more anxieties is the Modi panel report in 2011 on ways to control food prices. In that report, PM Narendra Modi, who was then CM of Gujarat, had recommended a ban on futures trading of essential items.
Moreover, the FM hasn't removed scores of items — mainly processed farm commodities — from the ambit of the commodity transaction tax (CTT) imposed last year.
While proposing 0.01% CTT in last year's Budget, Chidambaram had said it would be levied only on non-agricultural commodity futures. However, when the decision was notified, the finance ministry exempted only 23 items from the CTT net, declaring them farm commodities, but brought in processed farm and food items into the tax ambit.
The Budget hasn't also made any proposal to either cut a 10% import duty on gold or relax the stringent conditions imposed by RBI for