India needs to scrap all the farm input subsidies for developing a vibrant commodities derivatives market and also needs to move the commodities trading regulator Forward Markets Commission under the ministry of finance.
The views were expressed by several speakers the fourth Invest India Derivatives Forum 2002.
The country needs to develop a vibrant commodities market and to achieve this objective, all the farm input subsidies should be stopped and replaced with equivalent fiscal incentives on per acre basis to agriculture land owners and tillers, Ashok V Desai, noted economist and consulting editor of Business Standard, said.
Desai was in the chair at the session on commodity derivatives at the forum.
"The input subsidies are hidden risks attached to commodities and the subsidies make it difficult for players to manage such a risk which is subject to frequent changes," he explained.
The commodities trading regulator Forward Markets Commission should be moved under the ministry of finance to ensure fast and smooth development of commodities futures trading, Sanjay Shah, president of the Bombay Commodity Exchange, suggested.
Currently FMC is under the ministry of food, consumer affairs and public distribution while the regulator for the capital markets SEBI is under the finance ministry.
Putting both these regulators under one ministry could also ensure enactment of proper regulations for the participation of financial institutions and mutual funds in derivates trading for commodities.
"The current structure makes it very difficult for the two regulators to have smooth and consistent interaction which is a must if the commodity futures are to be developed in a sustainable way," he said.
Enumerating various reasons why extensive commodities trading had not taken off in a big way in India as yet, despite the FMC allowing it, Shah said that the cost of transactions was still very high.
Participants in the market preferred trading on the illegal and unauthorized exchanges instead of the official ones.
Differentiated tax structures prevalent in different states has also discouraged traders from actively taking up futures' trading in various commodities as interstate transactions were a necessity.
"From the current scenario, the scenario has to change where the entire process will be user friendly and make the consumer the fundamental focus," said Suresh Shah, president of Federation of Indian Commodity Exchanges and Indian Merchants Chamber and also former president of East India Cotton Association.
Innovation was very important and with so many different models available in so many different countries, India should pick one successful one.
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