Breeding ground for commodity market

Thinktanks and economists within the government want to free the commodity markets from the paranoia of politicians. In the economic survey, they have decided to back the commodity derivative markets by suggesting a removal of the trading ban of agri products such as urad, tur, rice and sugar���the latest commodity to be delisted from the futures market.

���The survey shows a positive attitude towards commodity futures trading by highlighting two studies, Abhijit Committee report and IIM-Bangalore report, which respectively suggests that there has been no evidence to show that futures prices affected spot prices and vice versa, and that the price of agri commodities moves along with the fundamentals of demand and supply,��� said Madan Sabnavis, chief economist, National Commodity & Derivatives Exchange.

���It also shows that the government is taking a view of removal of the ban on other commodities.���
While the government relisted wheat in May after a two-year suspension, it shortly thereafter suspended the launch of new contracts in sugar till December 2009 and allowed participants only to square off existing positions.

Indeed, the Survey has said that the derivatives markets could provide an early sign of future prospects for the sector. It has also recommended bringing all financial market regulations under Sebi with a view to encourage integrated development.

This implies that the commodity market regulation too should fall under Sebi, a proposal which has in the past raised the of the FMC chairman BC Khatua. ���Rather than contemplating regulatory convergence, it will be in order to ensure convergence first and foremost of the commodities futures and spot markets so as to enable the former transmit price discovery signals in the most effective manner,��� Mr Khatua told ET NOW in a recent interview.

Another recommendation made in the survey is to extend spot commodity trading in electronic form to agricultural markets by involving Agriculture Produce Marketing Committees���the spot market controlled by state governments.