Commodity exchanges going from strength to strength: Survey
Though the Survey believes India’s commodity exchanges are going from “strength to strength”, in reality, the market’s expansion has slowed down considerably compared to 2005-06.
By Nidhi Nath Srinivas, TNN |
It���s exactly a year since the government banned futures trading in wheat and rice. And, if the Survey���s silence on the issue is any indication, the government isn���t too keen on bringing it back any time soon either. It���s been a lacklustre year for commodity exchanges; turnover has grown from Rs 34.4 lakh crore in 2006 to just Rs 36.54 lakh crore in 2007.
Though the Survey believes India���s commodity exchanges are going from ���strength to strength���, in reality, the market���s expansion has slowed down considerably compared to 2005-06. The major share of the turnover now is accounted for by spices, crude oil and natural gas. While there has been a sharp decline in the turnover of NCDEX and National Multi Commodity Exchange, MCX and Indore���s National Board of Trade have both seen an increase in business.
For exchanges, turnover is important as it is a substantial source of revenue for them. Exchanges and market regulator Forward Markets Commission have been involved in educating farmers about the value of futures prices in price-risk discovery and hedging. But except for being able to see futures prices on a screen at the nearest mandi or post office, India���s 116 million farmers remain excluded from the process of price discovery.
The Survey acknowledges that India���s commodity exchanges remain inaccessible to farmers, even though they are the most vulnerable to price volatility and risk.
���Direct participation of farmers in commodity futures markets is somewhat difficult at this stage, as the large lot size, daily margining and high membership fees, etc. work as a deterrent for farmers��� participation in these markets,��� it states. But despite touting the importance of ���participation of all stakeholders���, the Survey does not suggest removal of these barriers to trade. Instead, it recommends that institutions aggregate farmer harvests and trade on their behalf.
Meanwhile, India���s commodity indices continue to lag international commodity indices. MCX commodity index rose 8% in 2007; in comparison, the Dow Jones AIG Commodity Index Cash Index rose 11% while the Reuters/Jefferies Commodity Research Bureau rose 17%.
Though the Survey believes India���s commodity exchanges are going from ���strength to strength���, in reality, the market���s expansion has slowed down considerably compared to 2005-06. The major share of the turnover now is accounted for by spices, crude oil and natural gas. While there has been a sharp decline in the turnover of NCDEX and National Multi Commodity Exchange, MCX and Indore���s National Board of Trade have both seen an increase in business.
For exchanges, turnover is important as it is a substantial source of revenue for them. Exchanges and market regulator Forward Markets Commission have been involved in educating farmers about the value of futures prices in price-risk discovery and hedging. But except for being able to see futures prices on a screen at the nearest mandi or post office, India���s 116 million farmers remain excluded from the process of price discovery.
The Survey acknowledges that India���s commodity exchanges remain inaccessible to farmers, even though they are the most vulnerable to price volatility and risk.
���Direct participation of farmers in commodity futures markets is somewhat difficult at this stage, as the large lot size, daily margining and high membership fees, etc. work as a deterrent for farmers��� participation in these markets,��� it states. But despite touting the importance of ���participation of all stakeholders���, the Survey does not suggest removal of these barriers to trade. Instead, it recommends that institutions aggregate farmer harvests and trade on their behalf.
Meanwhile, India���s commodity indices continue to lag international commodity indices. MCX commodity index rose 8% in 2007; in comparison, the Dow Jones AIG Commodity Index Cash Index rose 11% while the Reuters/Jefferies Commodity Research Bureau rose 17%.
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