Budget has given a policy boost to commodity markets. The repeal of the FCRA and introduction of commodity derivatives under the definition of securities in the SCRA answer the long-awaited requirement of empowered regulation of commodity markets. This will pave the way for deepening of the commodity markets through participation of banks, FIIs and mutual funds. The introduction of options and indices has been enabled through the adoption and the application of the SCRA. This also means that the commodity market will now align with the way the securities markets function.
It’s a game changing move for the commodity markets. The investors should feel more safe and confident to participate in a much bigger way in commodities markets. The commodity markets have come a long way under the able regulation by the Forward Markets Commission. We are confident that the changes will benefit the commodity markets quite significantly.
Another important area that has been given its due in the budget is the creation of a national market for agricultural produce. The Budget recognizes that farmers need to be incentivised through realization of reasonable prices for agricultural production and re-emphasis on creation of Unified Market Platform (UMP) validates the government’s resolution in this regard.
India has close to 7,114 regulated markets, including 2,483 main market yards and 4,631 sub-market yards. Creating a national market for agriculture would help remove market distortions and create a level playing field for stakeholders, promote efficiency. It will remove bottlenecks in the supply side, as it would allow a company/ buyer to work across the states, and will help farmers realise increased returns.
The UMP brings the international best practices to offer risk management and trade fulfillment processes for spot markets in the state. NCDEX has already been working towards this aspect to create “one state one market” using the UMP. This was introduced by ‘Rashtriya e-markets and Services Private in February 2014, a joint venture company of NeML and the Karnataka government, which is driving the efficiency of spot transactions by facilitating interconnection of state-wide APMCs.
Additionally, GST implementation within the year will be a big plus in creating National farm market. GST is expected to take care of the twin problem of cascading as well as multiple rates across different states.
The other positive move has been encouraging domestic supply of gold which has been endorsed in the Budget 2015-16. Introduction of gold monetisation scheme will provide the much needed impetus to the jewellery industry while offering interest income to gold depositors.
Floating of the sovereign gold bond will help capture the increasing investment demand for gold without creating the need to physically hold the gold. While there is no clarity regarding the platform on which this bond would be floated, it would certainly create additional opportunities to hedge in gold. Commencement of work on developing India branded gold coin is in sync with the government’s ‘Make in India’ campaign.
By Samir Shah
The author is managing director, NCDEX. Views expressed are personal.