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 purchasing the metal from overseas, as has been the demand of the industry.
The RBI last year brought in an 80:20 rule which mandated that at least one-fifth of the imported gold must be kept aside for re-exports.
However, the bullion industry would benefit indirectly from other government decisions. Somasundaram PR, MD (India) of World Gold Council said: Though there has been no direct announcement about gold and any reduction in duty; the tax incentives for marginal savers attempt to put more money in their hands and this indirectly benefits gold as well. Gold has been intimately interlinked with Indian society and culture as well as playing an integral role in annual household savings.
Similarly, the government decision to invigorate the warehousing sector and significantly improve post-harvest lending to farmers against negotiable warehouse receipts will benefit farmers. Keeping in view the urgent need for availability of scientific warehousing infrastructure, I propose an allocation of R5,000 crore for the Warehouse Infrastructure Fund for the year 2014-15, he added.
Sandeep Sabharwal, CEO at Sohanlal Commodity Management, said: The emphasis on scientific warehousing is a step in the right direction. I believe the focus from now on will not just be on the infrastructure aspect of warehousing but also on the processes that create an enabling environment for scientific storage of the commodity.