Single regulator will be dangerous: FMC

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Kochi: Coming down heavily on any proposal to have a single regulator for financial and commodity markets as suggested by 'Economic Survey' released on Thursday, Forward Markets Commission (FMC) chairman BC Khatua said a single regulator regime would be dangerous because of the inherent differences and utility between both the markets.

"Commodities markets are fundamentally different from the financial market because the underlying product is real. While the role of the equity market is to generate investment, the commodities market helps in price discovery and hedging," Khatua said on the sidelines of an industry event. The Economic Survey for 2008-09 on Thursday advocated bringing all financial market regulations under the Securities and Exchange Board of India (Sebi) to encourage integrated development.

Khatua, who heads the commodities markets regulator, FMC said commodities are consumable product unlike the financial products.

"When we look at the Western world, we realise that treating commodities as an asset class was a major reason for the economic meltdown. The futures market had no relation with the physical market and served only for speculation," he added. Critising the recent government decision to suspend futures trading in sugar to curb speculative activity, Khatua said that policy makers should be sensitised to read the signals from the futures market.

"The signals from the futures market indicated a tight supply position. Perhaps we would have been in a better position if the policy makers responded to the signals by improving the imports or reducing the exports," he said. India's nascent commodity futures markets have long been in the eye of the storm of government over repeated allegations that it fuels speculative trading leading to unnatural rise in prices.

In 2007, government banned futures in wheat, rice and some pulses under pressure from its then Left allies to check surging inflation. Economic Survey also advocated lifting the ban on all farm commodity futures and also deregulating sugar and fertiliser sectors from government control.

The total value of trade in the commodity futures market increased by 29% in 2008-09.

"The positive factor in the current fiscal has been that the share of agri-commodities in the total trade has kept pace with other commodities," he said.