NCDEX has been the bellwether of India’s commodities revolution, making a mark in the agriculture commodities futures. In a freewheeling chat with FE?s Sanjeeb Mukherjee, NCDEX chief executive officer R Ramaseshan talks about the exchange, its growth plans and also the future of commodities derivatives trade in India. Excerpts:

What is the future of commodity exchanges in India and what kind of turnover do you see by the end of this financial year for all commexes put together?

There is immense potential for commodity exchanges in India. The fact that you hear about applications being submitted for starting commodity exchanges quite often only corroborates this. Regional exchanges are being upgraded to national level exchanges as well. This again points to a growing interest in commodity futures. Currently, all the commodity exchanges are together clocking about Rs 40,000 crore turnover daily. Total turnover of all the commodity exchanges in FY11 so far (April to July) has grown 58% and in July 2010, it grew by over 63% compared to the year-ago amount. In 2009, the total turnover of all exchanges was around Rs 71 lakh crore. If this trend continues, we can expect the turnover at the end of FY11 to be well over Rs 100 lakh crore.

Do you think passing of FCRA (amendment) Act?that seeks to empower the FMC to bring about a qualitative change in the functioning of commodity futures market in India?

The amendment to the FCRA (1952) is long overdue. The proposed amendment seeks to increase the number of members of the Commission, give it the power to levy fines, set up a fund to give more financial powers to the FMC, among others. Let us consider some of the important provisions that will bring about a qualitative change in the functioning of the commodity futures market in India:

* Make provision for investigation, enforcement and penalty in case of contravention of the provisions of the FCR Act. This will definitely benefit the exchanges and the investors. For example, currently the FMC cannot take any direct action in cases of dabba trading. The menace of dabba trading is affecting exchanges as well as the investors. But with the proposed amendment, the FMC will be empowered to take stringent action and curb this menace.

* Allow trading in options. This will invite more market participation and impart greater depth and liquidity to the commodity futures markets.

Recently, the FMC had asked the exchanges to discontinue?sub-brokers not directly authorised by exchanges. Do you think it will hurt the brokerages, particularly in small towns and cities and?what impact it will have on the?exchanges? Ideally, what should have been done?

We have always followed the authorised persons? model in conducting our business. So we are not in anyway affected by this announcement.

Recently, there was a news item where agriculture minister Sharad Pawar reportedly objected to?the finance ministry using its influence to part stake of two entities in NCDEX in favour of NSE, what are your views on this and in such cases what role do you think FMC should have played?

We would not like to comment on this.

Is there any plan to alter the shareholding pattern of NCDEX by roping in new investors ?

As per the recent guidelines, no stock exchange can hold more than 5% of the paid-up equity capital in a commodity exchange.?This will result in a change in the shareholding pattern in our exchange.

Your primary rival MCX has now totally diversified into a metals and energy exchange. Does NCDEX plan to concentrate only on agriculture or widen its portfolio in metals and energy?

While we are proud to be leaders in the agriculture commodity space, we do offer contracts in other commodities as well, including metals and energy. We have recently seen crude pick up on our exchange as also steel. So we are hopeful that we will gain space in non-agricultural commodities as well.

What kind of growth and expansion plans are you looking at? Also, what was the turnover of the exchange in 2009-10 and what is the expectation?from 2010-2011 and why?

In 2009-10, our turnover was around Rs 9 lakh crore. We have seen healthy growth in volumes so far and going forward we expect the trend to continue.

Banks have sought permission from RBI to hedge their gold stocks in futures exchange. Do you think that will help commodity exchanges to garner more volume?

If banks are indeed permitted to hedge gold on commodity exchanges, it will definitely help us get more volumes. Banks, by virtue of their financial strength, will contribute to liquidity.

As NCDEX has largely been dealing in farm commodities, do you think repeated suspension of futures has impacted investor sentiment and if yes, how much revenue have you lost because of repeated ban on some or the other commodity?

Definitely, repeated bans have affected investor sentiment as it has created an atmosphere of regulatory uncertainty. The point to note is that the ban on commodities like wheat and sugar did not bring about the expected gains, i.e., fall in prices. In fact, inflation in the banned commodities has been higher post the ban than before it.

What is the exchange doing to push up the volumes and garner a large share in the market against the backdrop of increase in the number of commodity exchanges?

We are not chasing volumes. In fact, our goal is larger? ensuring efficient price discovery. To this end, we are trying to encourage participation by making efforts to reach out to all participants in the commodity futures trading, especially beneficiaries in the last leg, namely, the farmers. We, along with the FMC, are working towards increasing awareness among farmers and also putting up ticker boards in various mandis and other locations displaying spot and futures prices so that farmers can not only take decisions about sowing and marketing but also use our platform to hedge their risks.