Most states yet to amend APMC Acts

NEW DELHI: The trading community may be waiting with bated breath for the impending report of the Abhijit Sen panel on the commodities forward markets and the impact of banning futures trading in dal and wheat on domestic prices but the regulatory framework on even spot trading exchanges is not in place yet. State APMC Acts would have to be amended for this but only 12 states and one UT have completed the process of amending the Act till June. A healthy growth of the spot market is imperative in states in order that the forward markets thrive in the country.

“Of these, it’s actually working only in Rajasthan and MP,” according to Joseph Massey, deputy MD at MCX India. Setting up a firm foundation for spot exchanges in states is a key pre-requisite for launching electronic platforms in mandis that will immediately convey commodity prices in other mandis on a speedy basis, allowing farmers to decide on whether to sell their produce and when. Changes in the APMC Act are imperative for launching these platforms in organised spot markets in states.

However, another five states have partially amended their APMC Acts or passed a resolution or executive order to the effect. Of these. Haryana has only allowed direct marketing and contract farming, Karnataka has only allowed direct marketing and private markets through the NDDB, Gujarat has only allowed contract farming through a resolution and the NCT of Delhi has allowed only direct marketing. UP has allowed direct marketing on a case to case basis, through an executive order. Bihar repealed the Act recently, Kerala and Manipur and the other UTs have no APMC Acts and hence do not need any reforms.

Two of the country’s key commodity exchanges, MCX and NCDEX have already started screen-based transparent price discovery in spot markets for agricultural produce in some states, with the objective of rationalising the value chain of agriculture so that farmers get a much larger share of the final price the consumer pays.

Significantly, spot markets for agricultural produce in this country function as completely separate entities distinct from the futures market. Whereas worldwide, the spot and physical markets come under the oversight of a single regulator as they are interlinked, in India, the Central government oversees the derivatives markets for commodities while the spot markets fall under the purview of state governments, which frame their own rules and levy their own taxes.

Again, there is no such parallel in the form of electronic screen-based exchange traded markets for agricultural commodities elsewhere in the world. B2B platforms exist in other commodities, but these are not exchanges. In the developed world, a majority of farmers use futures and options in commodity derivatives and even recognised agents quote spot market prices benchmarked to the commodity derivatives’ contract prices.

Given the poor organisation of commodity spot markets in states (thanks to slow progress on the APMC Act amendment front), therefore, exchanges project that spot market turnover will be only of that of the derivatives market. But analysts stress that a healthy growth of the futures market is only possible if there is a digital-enabled structured growth of spot markets as well. Derivatives volumes stood at a mind boggling Rs 21,34,000 crore in 2005-06.