Introduction, Contents, Foreword, From the Editorial Desk ... - MCX

market CoMMENTARY
ward Contracts (Regulation) Act,
1952, an Act enacted in the backdrop
of wartime shortages. Evidently, a
market which has grown by nearly
40% in the past four years to become
one of the largest in the world
(implying its enormous importance
for the economy) and its products
are reckoned as an investible asset
class in the league of stocks and
fixed income instruments, needs
to function under the ambit of a
market-enabling regime than this
Act allows. The intended amendment
to the Act is yet to see the
light of day, despite being at various
stages of review by legislators for
close to four years. As a result, not
only is market development, incommensurate
to the level of economic
requirement being impossible to be
taken up under the existing law but
also that integration of the commodity
futures market with the
physical ecosystem has been left
incomplete. The reluctance of both
capital and money market regulators
to let their regulated entities
enter the commodity futures market
appears to be for two broad reasons:
the lack of clear policy guidelines
and the absence of an autonomous
regulator for this market. Similarly,
denying products such as options
and intangibles, which could fulfil
the hedging demand of a very large
number of stakeholders – not the
least of who are from the farming
community – is tantamount to
keeping these stakeholders away
from an effective risk-mitigating
device.
That economic stakeholders are
more prone to commodity price
risks under effect of global forces
has been well recognized by now.
This has been the biggest contributor
to the creation of the demand
side of the commodities derivatives
market. What has been less appreciated
is the tremendous potential
that a fast-growing large economy
like India holds in the world of
commodities market to get back
its ancient price-setting power.
Given the size of its population and
nature and growth potential of its
economy, India is one of the largest
producers and/or consumers of
most commodities. With liberalised
markets – both physical and futures
- and an accommodative policy
regime that promotes new products
and market participation from India
and abroad, the commodity derivatives
market in India can set global
benchmarks not only in terms of
prices discovered in its markets
but also in terms of products and
practices. Already, despite being
under a relatively restrictive market,
the country’s largest commodity
futures exchange is the sixth largest
in the world, occupying the top
position in silver and second position
in gold and natural gas. With
an accommodative policy, India
can definitely be the price-maker
rather than a passive price-taker
for most commodities in the world
market, especially the ones that the
stakeholders actively trade in. Such
policies would not only include
Courage is not
the absence of
fear, but rather
the judgment
that something
else is more
important
than fear
Ambrose Redmoon
those that promote futures trading
in commodities but also remove the
hurdles on the way towards formation
of a pan-India physical market
for commodities setting up a solid
platform for national commodity
derivative markets.
Today, as we stand at the cusp of
history and a generation witnesses
the transition of India from a
poverty-stricken country to one
of prosperity and economic might,
the visages of control that inhibit
this transition have to be identified
and removed. Cynics argue against
liberalising commodity markets for
a range of imaginary fears, ranging
from stoking fires of inflation to
securing supplies of key intermediaries.
But as our experience
with liberalisation (together with
similar actions of the other emerging
superpower, China) has clearly
demonstrated, there is much more
to gain through liberalisation of
markets and economy than to give
into what the phantoms of imagination
would lead us to believe.
After all, the Indian economy has
proven to be robust enough to
withstand and emerge successfully
from transitions and crises; and
markets, under leadership-providing
regulators, mature enough to
unlock values for the economic
stakeholders. What is needed now
is only an enabling environment,
created by an imaginative and bold
policy agenda, so that these values
are reaped by all stakeholders to
their fullest extent. As American
writer Ambrose Redmoon once
famously said, “Courage is not
the absence of fear, but rather the
judgment that something else is
more important than fear”, only
some boldness in policymaking and
a commitment towards further
liberalisation of economic forces
can catapult us to the next level
of growth
14 | Commodity Insights Yearbook 2010