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MR Subramani
New Delhi, Oct 12: Ramesh Arora, a coffee exporter, had to cancel his robusta coffee export contract last month as he could not get any physical stocks.
But he is confident that it will not recur next year, thanks to domestic coffee futures - contracting stocks for future delivery - becoming a reality in June this year.
Arora's optimism is shared by the industry and growers alike as the concept of commodity futures trading is steadily gaining steady ground in India with coffee being the latest among the items so traded.
Domestic futures trading is already taking place in commodities like potato, turmeric, jaggery (gur) and jute, while international futures exists for pepper.
And in the pipeline is an international futures for castor oil besides the revival of cotton futures trading.
Two more crucial elements have been added to commodity futures trading last month, with government clearing futures for soyabean, soymeal and soyabean oil and allowing dollar-denominated trading in the proposed castoroilfutures exchange.
"The government decision to allow futures in soyabean and its products is the first step in allowing futures trading in oilseeds," says civil supplies and consumer affairs secretary NN Mookherjee.
The government has plans to allow more futures trading and its immediate concern is to set up exchanges for the 11-odd oilseeds grown in the country, Mookherjee says.
Futures trading is a concept whereby a commodity is traded months before it could arrive in market or against a future demand.
While the grower can be assured of a reasonable price even as his produce is in the field, industry covers its risk of having to pay higher prices later by booking its purchases in advance.
For the consumer, the futures is a guarantee against volatile price fluctuations.
Spices Board chairman V Jayashankar says price fluctuations are more in a commodity in which there is no futures trading.
To illustrate his point, he points out that fluctuations in turmeric price have been minimal in view ofthe existence of a futures market in Sangli, Maharashtra, whereas price fluctuations in comparison have been higher in case of chilli.
"Compared price movements in pepper and cardamom. You will find minimum fluctuations in pepper as there is a futures exchange for it," he says.
While the International Pepper Exchange is just 11 months old, the domestic pepper exchange has been in operation for the last 50 years, says former Indian Pepper and Spices Trade Association chairman T Vidyasagar.
Ever since liberalisation, government has seriously considered strengthening of commodities market and as a sequel, it set up a committee headed by Prof Kamal Nayan Kabra in 1993 to study the scope for futures trading in the country.
The Kabra committee's recommendations have been significant but its implementation is being done at a measured pace, says Mookherjee.
Ironically, Kabra himself was the only dissenting member in the committee. The government should not allow futures in crops like cotton or otheragro-commodities since the country is not self-sufficient in production of these crops, he says.
Mookherjee says reasons for measured pace of reforms in commodities trading was to ensure that government does not later regret its hasty action.
"We do not want to plunge headlong into a territory which has remained uncharted for decades," he says.
But since 1995, the pace in reforming commodities trading has picked up and last month, government decided to amend the 1952 Forward Contract (Regulation) Act to remove ban on option and strengthen the Forward Markets Commission (FMC).
Strengthening of FMC is a must to ensure better futures commodity trading, says experts.
However, not all are satisfied with the functioning of the futures markets.
The International Pepper Exchange at Kochi is a point in case which has been dogged by poor turnover ever since its inception in November 1997.
"What the pepper exchange needs is a multi-drug therapy. But it must also be admitted that it was begun at a timewhen pepper prices were ruling high and demand was low," says Jayashankar.
Ipsta, which runs the exchange, had suggested various steps to pep up trading at pepper bourse, where currently the daily turnover is only 600 tonnes.
The exchange has also been hit by poor foreign participation. Only during last week of September, did the exchange get a foreign member in the form of `Man Producten Rotterdam BV' of the Netherlands.
"Allowing trading in dollar can help improve the trade turnover," says Vidyasagar.
With government allowing dollar-denominated trading for the castoroil exchange, permission for the pepper exchange for such a facility is only a formality, says Mookherjee.
The government is committed to revival of futures trading and will leave no stone unturned in its efforts to give a boost to futures trading, says Mookherjee.
Plans are afoot to remove the ban and restrictions on futures trading in oilseeds like groundnut, while government also plans to institutionalise brokerage, hesays.
"Currently, the Forward Contract (Regulation) Act has no definition of a broker," the official says.
The government needs to popularise the concept of futures trading besides making necessary changes in law to facilitate trading, says Ashwin Shah, chairman of Coffee Futures Exchange of India (COFEI), which runs the coffee exchange.
Government officials say views on futures trading, seen as a form of gamble by some, have to be changed but it will take time.
In trying to bring some respectability to futures trading, various measures are being carried out.
One such is the introduction of warehouse receipt by the domestic coffee futures exchange. In this case, a warehouse is certified by the exchange and in turn, the warehouse will issue receipt for the quantity and quality of a produce stored in the warehouse by the sellers.
This receipt can be issued to the buyers by the sellers once a transaction takes place.
"This is a concept which we will try to include in the Forward Contract(Regulation) Act," says Forward Markets Commissioner Vijay Agarwal.
Despite the government's keenness on allowing more futures trading in commodities, its efforts would be to have a minimum number of multi-commodity exchanges than numerous small regional commodity exchanges, says Agarwal.
"However, we can not avoid regional exchanges as in the case of pepper, which is region specific," Mookherjee says.
"We would like to have a manageable number of multi-commodity exchanges," Agarwal adds.
The industry itself is eager to have such multi-commodity exchanges.
The Bangalore Stock Exchange, whose infrastructure is being utilised by the coffee futures exchange, would like to have futures for sugar and potato, if possible.
Mookherjee says government plans to have multi-commodity exchanges is regarding related goods, like oilseeds.
Besides, government would also like to see the exchange being modernised.
"We would like to have screen-based trading in the exchanges," says Agarwal.
Both the pepperand coffee exchanges plan to introduce such trading in their second phase.
"Commodity futures has come to stay. In fact, you are indulging in speculation only if you are not hedging," says Jayashankar pointing to the "future course" in commodities trading.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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