Commodity Futures in India – A Product of ... - MCX in Marathi

The Way Forward
At this juncture when the Indian markets are on their
way to the heights achieved by the global benchmark
markets, it is essential that they are allowed to have the
right mix of participants —and products — to have the
necessary liquidity depth and width. Corporates and
physical market players in India are gradually realising
the importance and need to participate on commodity
exchanges. An increased participation of such players
will go a long way in streamlining commodity trading
in India by bringing in relevant information about the
fundamentals into the markets and, thus, making the
price discovery process more efficient. Besides, this will
also help corporate best practices percolate into the
markets to fine-tune their functioning and efficiency.
Given the current trend of globalisation of economies,
competitiveness remains one of the most defining
factors for developing economies. And this not only
means having competitive manufacturing and services
sectors but also necessitates promotion of markets to
make them globally-competitive.
To cite an example, in I ndia, neither the
automobile/ancillary industries manage their input
costs effectively nor do the suppliers of their raw
materials. This is partly due to lack of policy guidelines
allowing and promoting them to effectively participate
in the market and partly because of lack of awareness
on their part. However, of late, the coming up of the
national commodity exchanges, armed with their
global alliances, has provided industrial users of
primary commodities with easy access to an alternative
platform to trade on. The domestic exchanges offering
such an opportunity to the industry ought to be
effectively harnessed to efficiently manage their profit
margins and safeguard their investor and consumer
interests by infusing efficiency and economy into their
procurement operations. Effectiveness of participation
in global exchanges can only be replicated if the
domestic exchanges meet the efficiency of trading in
the global benchmark exchanges, especially in the
globally traded commodities (with least trade
distortions).
Although India has a long way to cover in harnessing
the potential in the major commodities, the story of its
bullion market is bright. The Indian bullion market has
demonstrated its resilience to remain the “price setter”
for gold and silver in the Euro-Asian time zone. Indian
(MCX) bullion prices have strong correlation with those
of the international benchmark markets.
Gone are those days when policymakers successfully
used MSP as an instrument to influence the cropping
pattern and production of farmers. It is the functioning
of the domestic commodity exchanges which will
strengthen the market-based trading system in India
making it useful for Government procurement. The
exchanges will create an environment where farmers
have multiple selling options (for their produce) such
as the spot market, the futures market, and the futures
market-referred over-the-counter forward market. The
futures market in electronic format being executable at
the national level, integration of banks and
institutional traders into the market will create several
institutional options for farmers. Further, once allowed
options will help farmers lock in their prices on the
commodity exchanges in a more efficient way than
they can currently do with the existing instruments.
Besides the price risk, which can be mitigated by
trading in relevant commodity derivatives, the weather
risk has a profound impact on a farmer’s income under
the predominantly rainfed farming (about 70% of net
cultivated area) conditions prevalent in India. And if
there could be a single most positive and defining step
that can be taken towards solutions to such problems
as mentioned above it shall be the passage of the longpending
amendment to For ward Contracts
(Regulation) Act. The Act, once effective, will work
towards an efficient and vibrant commodity market in
India (both on the physical and futures fronts) and
bring a world of good to the entire commodity market
ecosystem. The multi-faceted benefits will include
introduction of a number of innovative instruments,
such as farmer-friendly weather derivatives.
India is a land of billions that
consume a large portion of most
primary commodities produced in
the country. For the domestic
exchanges to rise to the challenge
of turning the country into a ‘price
setter’ it is necessary that India has
strong and transparent markets
with robust infrastructure for
efficient transactions.
EXPERTS’ VIEWS | 25