In a first major step towards reforms in the commodity futures market, the Cabinet on Thursday approved amenments to the Forward Contracts (Regulation) Bill, which will provide greater autonomy to the regulator and facilitate easier entry of financial institutions.
The Bill has been approved to help farmers in price discovery and also to offer more power to the Forward Markets Commission (FMC), finance minister P Chidambaram said after the Cabinet meeting.
The Bill, which also provides for launches of new products such as options and derivatives, was stuck for a long time, while imposition of bans on some farm futures periodically in the pretext of curbing inflation created an atmosphere of uncertainty and discouraged investment.
The Bill will have to be approved by both Houses of Parliament, and once it is done, the amendment to the Act will come into force after receiving the assent of the President.
In August, the Cabinet had deferred a decision on the Bill after opposition from Trinamool Congress, which had asked Prime Minister Manmohan Singh to hold the proposal until a broader consensus ? among political parties as well as states ? was evolved. With the TC out of the government, the Bill has now been cleared.
The turnover value of the commodity exchanges grew 52% in the year through March to R181.26 lakh crore after rising 54% in the previous year to R119.49 lakh crore, official data showed. The huge turnover at the exchanges calls for greater autonomy and powers with the FMC to effectively regulate the market, industry bodies have long argued.
?…the new FCRA will not only strengthen the commodity market regulator and regulations, it will also pave the way to introduce new tools for hedging and price risk management, bring about better price discovery, and create Indian benchmark prices for commodities which are widely produced or consumed in India,? Multi-Commodity Exchange managing director and chief executive Shreekant Javalgekar said.
?New hedging tools such as options and indices besides new intangible products can now be introduced….We expect an early passage and implementation of the Bill,? he added.
R Ramaseshan, managing director and chief executive of National Commodity and Derivatives Exchange (NCDEX), said : ?The approval will give NCDEX the necessary edge to link farmers to the national commodity market.?
The previous version of the FCRA Amendment Bill could not be passed in the 14th Lok Sabha and had lapsed with the dissolution of the Lower House, partly because of the opposition by the Left parties, who have traditionally been of the view that futures trading has the potential to stoke inflation.
FMC has traditionally been opposing banning futures trading of farm items, and empowering the regulator would infuse relative stability in the market, a senior executive with a commodity bourse said. Currently, FMC is largely functioning in its traditional format, although the commodity market has been liberalised since 2003.
The Cabinet also approved extension of a scheme for the distribution of subsidised imported edible oils to states. It also agreed to provide higher subsidy on pulses for supplies though the public distribution system.
