What are the budget expectations for Commodity Markets?
The last big change in the Union Budget pertaining to commodity markets was in 2016 when the regulation of commodity markets was brought under the purview of SEBI. Since then, the demands of the commodity markets have been growing but the Budgets have not exactly been in sync. Here are 5 expectations.
Time to scrap CTT
It may be recollected that commodity transaction tax (CTT) was imposed on commodity market transactions in 2013, on the lines of STT. Since then, the commodity volumes have failed to scale the pre-CTT levels. The reasons are not hard to seek. Commodity trading is a highly leveraged business and any additional costs tend to get magnified. Each year, the commodity traders have been demanding scrapping of CTT. It is high time this budget bites the bullet.
National agricultural market
This has been discussed and debated for a long time and was part of previous budgets but made little progress. The NAM will allow the farmers to sell agri futures and lock in a price by directly selling to the mandis without going through the middlemen. This could be an effective use of the commodity futures market wherein farmers get a better price and also manage their risk. Budget 2020 can be the time to take this initiative to its logical conclusion and implement on a national basis.
New exotic products
There has been little by way of new products introduced. Options have been launched in a halting manner while options on direct commodities are under consideration. It is time to look at global commodity indices, ETFs on commodity indices, inverse products that allow taking short positions on indices, commodity spread contracts etc. These will add depth and also get institutional investors to play a more active role in the commodity markets in India.
Integrate spot and futures
A long unfinished agenda has been integration of spot and future markets in terms of regulation and cross margining facilities. Today, futures are regulated by SEBI but spot commodities are still regulated by the respective states. At least for the purpose of trading in commodity futures and options, these regulations should be standardized. Secondly allow cross margining between spot and futures market to reflect risk.
Resolution to NSEL issue
The NSEL scam caused a loss of Rs.7,000 crore to investors and there has been little progress even after 7 long years. It is time to close the issue and book the perpetrators. That will give confidence that SEBI is really serious about the integrity of markets. It will also be a sentiment booster.