On the delay in announcing guidelines despite the RV Gupta committee having submitted its report way back in September 1997

Bureaucratic tangles caused the delay even when all segments of government, including the Reserve Bank of India were keen to kick off hedging in commodities on the international exchanges. Also, there was a change of government in the first quarter.

Now that the RBI has announced the guidelines, it opens up a whole new world for all those engaged in the commodities business,including mining, manufacturing and trading. Also, it brings in tremendous opportunities for the likes of us engaged in offering specialised systems for managing risks.

On how corporates hedge their requirements as of now

Barring few top level corporates, not many are hedging their requirements. Those who do, route them through their overseas offices or their associates. Without such arrangements it would be difficult for corporates to protect themselves from the highly volatile commodity prices and foreign exchange rates.

On the preparedness of corporates to take advantage of the new RBI guidelines

While there is awareness and readiness to hedge purchase positions by some of the top rung corporates, there has been little awareness among the second rung, the actual user industry. Even majority of those engaged in agro trade do not seem to be too alive to the new developments.

On the reasons for commodity trading not being as attractive as stocks

Commodity industry is highlycompartmentalised, wherein those connected with one product will hardly interact with those connected with other. All play their games, which distribute not just the energies of those engaged in commodities industry as a whole but even the capital needed for commodities trading. This therefore, makes commodities a poor cousin of stocks in financial markets. However, it is necessary that this attitude is shed at the earliest by all those connected with the commodities if we are to achieve best results for the economy as a whole.

On the guidelines being exhaustive enough to help corporates take positions in international markets with immediate effect

This is the first set of guidelines, we have to see its practicability. However, in one particular case the guidelines seem to be inadequate and may not be practical enough for corporates. For example, on the London Metal Exchange there are monthly average contracts which are not standard LME contracts as required by the RBI.

Majority of thesecontracts are constructed out of standard LME contracts and are therefore, OTC contract between the customer and the broker. Given the vast bulk of metals business conducted on a monthly average pricing basis, it would seem to me that the government should permit the OTC types of hedges, otherwise the permission would be largely ineffective and meaningless.

Also, in the area of options, permitting only standard contracts limits the flexibility that the user will have. All this indicate that users of the hedging facility may approach the RBI to revise the guidelines.

On how Mecklai Financial will extend services in commodities hedging and risk management

Our basic strength is to help corporates with systems for managing risks through various sophisticated analytical models. This could be customised for any product, including commodities. Also, we have set up Mecklai Metals, which is the Indian representative of Billiton Metals, a leading LME ring trading member. To expand our scope on othercommodity exchanges, we are currently negotiating with a few international brokers having membership on more than one commodity exchange and possible linkages on the Chicago Board of Trade (CBOT) and few others.

On the domestic commodity markets and the regulatory body

I would not want to comment on the second aspect. As regards the domestic commodity exchanges, there number is simply too large to control effectively. Also, their effectiveness is hampered because of lack of capital and speculators who create volumes backed by investors' money. It is necessary that the number of exchanges are reduced to around 2-3 catering to all the principal commodities in that region.