‘FCRA amendment vital for commodity markets’

Volumes have fallen in the commodity markets. Is it because of the NSEL crisis? Is it true that some big speculators have moved out of commodity markets in the wake of tight guidelines?
FMC has taken a series of steps in the last two years for better regulation and development of the market. We have observed that the price volatility in the commodity market has been by and large lower in recent months due to a number of factors relating to demand and supply. This naturally creates a lower risk to the physical market participants and there is less incentive for them to hedge their price risks on the exchange platform. Lower price volatility also does not attract the speculators or day traders in the same way that higher volatility does. NSEL crisis may have had a temporary impact but now the market participants’ confidence seems to have come back.

What about investors who lost Rs 5,500 crore in NSEL? Do you see any possibility of recovering or tracing this money?
A number of agencies are investigating the NSEL payment crisis and the role of a number of individuals and entities in this matter. Action is also being taken under the Maharashtra Protection of Interest of Depositors Act and a large number of properties of the accused persons have also been attached by the police. A number of cases in this regard are also sub judice in the courts. Hence legal process for the recovery of fund is already in progress.

There’s a complaint that NSEL borrowers, who actually diverted money, are going scot free. Do you agree?
This relates to the many agencies which are investigating the matter. However, we have seen that some NSEL borrowers have been arrested by the police and a number of their properties have also been attached. The process of investigation is on and one charge-sheet has already been filed by the EOW in this matter.

In hindsight, do you think the government could have avoided the NSEL crisis had it acted at the appropriate time? You had sent a report on NSEL three years ago and the govt sat on it for quite some time?
As is known now, FMC had sent a report to the government regarding NSEL in April 2012. The government directed NSEL in July 2013 not to launch any fresh contract. It is beyond my competence to judge the action of the government.

Commodity markets were earlier dubbed as ‘casinos’. Do you think they are safe for investors now?
A number of structural reforms have been carried out by FMC since June 2012 and there has been a remarkable improvement in the way these markets are regulated. There is much greater convergence between the physical and futures markets now. An important step was taken in June 2012 to implement a staggered delivery system for agri products which has resulted in bringing a better balance between speculation and hedging. Because of these reforms and strengthening of monitoring and surveillance, which has prevented market manipulations especially by large entities, this market has not been blamed in last two years for distorting the physical market price and for inflation. In fact, the prices of most agri products traded in futures market such as chana, soyabean, guar, mustard seed and castor seed have come down in the last two years due to fundamentals.

Do you think there is a need to scrap or cut transaction tax?
FMC has noted that in the last year, the participation in the market has come down partly due to imposition of transaction tax. We are also of the view that a number of agriculture products need to be added to the exempt category.

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