The Centre?s move to issue an ordinance giving more teeth to the Forward Markets Commission (FMC), to bring it on par with other regulators like Sebi and thus realise the full potential of forward markets, is welcome. But only just, going by past experience. The tardy efforts to enhance the FMC?s powers over a period of almost a decade have revealed a lack of urgency with which the country?s legislature and government deal with issues related to agriculture. Though a Bill to amend the Forward Contract Regulation Act of 1952 was initiated as long ago as 1998, the effort fell though with the dissolution of the 13th Lok Sabha. Then it took the new government as long as two years to introduce a new and more extensive amendment Bill in 2006. As drafted, it was supposed to enhance the status of the FMC from a mere government department to a properly empowered regulator, allow trading in derivatives and options, permit corporate ownership of exchanges, and serve the cause of demutualisation by separating ownership from trading rights. While the current legislation in force only allows the FMC to oversee forward and future contracts, the amendment Bill was expected to extend its regulatory powers to all commodity derivatives and options. The Bill has some glaring shortcomings?the scope for overriding government intervention remains large, the ability to penalise wrongdoers is constrained, and the dual regulation of commodity markets could jinx the system.
Critics of the amendment Bill have held that it would reduce the FMC to a handmaiden of the government, which will nominate eight of its nine members and retain the power to drop them at will. The Bill does not give the FMC the sort of punitive powers wielded by, say, Sebi. Then there are also problems related to the dual regulation of commodity markets, with state governments continuing to regulate the cash segment, and only derivatives trading to be placed by the Bill under the FMC?s ambit. The Bill has not yet been passed. The ordinance is supposed to take its place in the interim. This holds promise. But the larger legislative infirmities would have to be addressed for forward markets to benefit in a significant way. Meanwhile, withdrawing 2007?s clamps on future trading in wheat and pulses would be a sensible move.
