Is it a desirable move?
Neha Malik & Saon Ray
The commodity futures market was mainly set up to serve the functions of price discovery and risk management. The main participants in this market are the hedgers, speculators and arbitrageurs. The value of trade in Indian commodity markets has risen by more than 30 times in the period between 2004-05 and 2011-12 with MCX and NCDEX comprising of the highest percentage of the total value. Bullion (comprising gold, silver and platinum) and other metals have dominated the market in terms of the percentage of value of total trade, accounting for 72% of value of total trade in 2011-12 as against 31% in 2004-05. The other major groups traded are agriculture and energy.
A commodity transaction tax (CTT) of 0.017% on sale and purchase of a commodity derivative contract (futures in case of India) was proposed by the government of India (GoI) in the 2008-09 budget with a view to mobilise additional revenue and check speculation. It had been felt that the market had been dominated by speculators who were responsible for causing inflation in some commodities. The proposed CTT, however, was not notified and subsequently withdrawn in the following budget. Though most countries, including India, have introduced the Securities Transaction Tax (STT), the only country to impose CTT till date is Taiwan. Apart from this, Brazil also imposed a uniform tax of 2% in 2010
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