Spot commexes push for state bodies in e-market

Taking a cue from the government?s move to remove legal hurdles in the creation of electronic markets for agricultural commodities, top spot exchanges have demanded that state-owned procurement agencies like Food Corporation of India (FCI), MMTC Ltd and Nafed be given access to electronic spot exchanges. According to these exchanges, this would thwart speculators and become a significant step towards achieving price stability and curbing food inflation.

Currently, FCI, MMTC, PEC and Nafed adopt a tendering process to sell their stocks. As prices are seldom put in the public domain, parallel markets have come into existence in the case of most commodities, jacking up prices for the consumer.

In a meeting with chief ministers here last week, Prime Minister Manmohan Singh stressed the role electronic markets can play in ensuring better price realisation for farmers.

?When the tendering process and prices are not in the public domain, it helps run a parallel market system,? Rajesh Kumar Sinha, Head, NCDEX Spot Exchange Ltd (NSPOT) told FE. He urged the government to ensure that at least location of stocks and prices of commodities held with mega state-owned enterprises should be made public, so as to curb speculation.

While FCI and Nafed procure agricultural commodities such as wheat, rice, cotton, pulses on behalf of the government from farmers, MMTC and PEC mostly deal with imports of edible oil and pulses as a major portion of domestic supplies of these commodities is met through imports.

Sinha said the government must prevail on state enterprises to route some of their trading through electronic spot exchanges to ensure better price realisation. ?The tendering process is time-consuming and often results in losses to the government because of fluctuation in the international prices of commodities like edible oil and pulses,? Sinha said. NSPOT is promoted by leading agri-commodities exchange NCDEX.

Last week?s meeting of the core group on prices had stressed the need to reduce the gap between the farm gate and retail prices of agri-commodities. It also suggested removal of ?legal hurdles in creating a national market through electronic portals.?

?The fundamental difference between the current physical market structure and the spot exchange is that the latter is a fee-based activity, and so there is no incentive for artificial jacking-up of prices,? Anjani Sinha, CEO & MD, National Spot Exchange Limited (NSEL) said. Sinha said spot exchanges that rely on transaction and service fees can help reduce transaction costs. ?On the contrary, the entire physical trade is based on buying, selling, holding or hoarding and profiteering for oneself,? he said.

NSEL, which Started in October 2008, had handled delivery of physical commodities worth Rs 3,403 core during 2009-10. The spot exchange operates in 11 states and provides delivery-based spot trading in 24 commodities. NSPOT had a turnover of Rs 100 crore last fiscal and deals mainly in tur, chana etc. Last month, FCI for the first time used the e-auction route in the NSEL for selling its excess wheat stocks in Delhi through open market sale scheme.