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Commodity exchanges bracing for Budget
February, 27th 2007
Commodity exchanges are hopeful that the Union Budget will not have any measures that will affect them adversely.

However, they are bracing themselves for any Central move that could tell on their functioning.

"We don't think that the Centre will delist any commodity from trading on the futures. We think there won't be any measure that will affect us in the Budget," said Mr P.H. Ravikumar, Managing Director of NCDEX.

Mr Ravikumar's hope stems from Union Food and Agriculture Minister Mr Sharad Pawar's statement last week that futures trade had nothing to do with the higher rate of inflation. For the week ended February 10, the rate of inflation was 6.6 per cent.

Inflation has been above six per cent mainly because of costlier primary articles, which mostly comprise agricultural products.

"Mr Pawar has said that a committee would be set up to review futures trading in agricultural commodities. We welcome it. Charges that futures trade is the reason for higher prices of agricultural commodities are unfounded. We have given ample proof of this to the Planning Commission," Mr Ravikumar said.

According to officials in other commodity exchanges, Mr Pawar's statement reveals the pressure put by the Left parties to ban forward trading. "But we don't think futures trade in agricultural commodities warrants delisting," they said.

Other commodity exchanges also share the view that the Budget will not contain any measures to curb their functioning. "Functioning of commodity exchanges and Budget are two different things," they said.

However, it was during the 1997-98 Budget that the then Finance Minister, Mr Yashwant Sinha, announced that amendments would be carried out to the Forward Contracts Regulation Act, 1952 in order to facilitate futures trading, mainly in agricultural produce. Mr Sinha had also said that futures trading would help farmers realise better prices for their produce.

A commodity exchange official said that the bourses were ready for whatever framework the Government wanted them to function under. "We are part of a system and we will have to work within that," said the official, who did not wish to be identified.

On the other hand, the measures carried out by the Centre to curb inflation have affected the turnover in commodity exchanges. These include increasing the margin to be paid for entering into contracts and delisting of urad and chana futures.

For example, on the NCDEX, the average one-way turnover has declined from Rs 4,500 crore to Rs 3,500 crore a day.

Meanwhile, Kotak Commodities Services Ltd, in a pre-Budget expectation, has said that brokerage charges could rise by 100 basis points to 13 per cent.

This is because the Finance Minister, Mr P. Chidambaram, has gone on record saying that service tax should converge to a Goods and Service Tax at the Cenvat rate of 16 per cent.

The company also said that it expected the Finance Minister to announce measures for participation of banks and foreign investors in commodity exchanges.

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