After ICRIER, it is now Confederation of Indian Industry (CII), which has said that imposition of commodity transaction tax (CTT) would make India?s commodity exchanges ?uncompetitive? and would adversely impact the volumes.
In a study conducted on the possible impact of CTT, CII has said that the tax would lower the volume of futures trading in the range of 59% to 18%, depending upon the commodities, within a short span of seven days of its imposition.
The CII analysis conducted for a sample of five major commodities representing a significant share of commodity derivatives market for a period of two years between May 2006 – April 2008 revealed that the maximum decline would be felt in the case of gold (59%), followed by Crude, (57%), Chana (56%), Copper (53%), and Refined Soybean Oil (18%). ?CTT will eliminate our chances of being price setters in the Asian timeline and we would always remain price takers, much to the disadvantage of the Indian economy,? the study said.
During the budget speech, the finance minister P Chidambaram had proposed to levy a CTT of Rs 17 per lakh on the lines of Security Transaction Tax. At present, traders incur an average transaction cost of about Rs 2 per lakh. The study said that CTT would make ensure shifting of trade to unorganised platforms or to global exchanges. It said that no country in the world levies transaction tax on commodities, and hence when it is implemented in India, there is a fear that it would render domestic futures market uncompetitive vis-?-vis the global markets.
Lower volumes, the study said, would also make the commodity markets more volatile. Since futures price signals are passed on to spot market, chances are that commodities may get costlier as traders pass on the costs of bearing to consumers, thereby contributing to inflation.
The study said that globally, the markets for commodity derivatives are considered to be vital instruments of price discovery, price risk management, thereby efficiently allocating resources across different sectors of an economy and providing advance price signals to producers and consumers.
This helps them make efficient decisions on production, consumption, and marketing decisions, etc, which have a large bearing on their income and cost. It was with the same purpose, the Government of India liberalised online trading in commodities since 2003.