The Budget comes in the midst of tough economic times but a not-so-fractured mandate gives the government the luxury of having and implementing a long-term vision. Ideally, the budget announcements should set the trend for not just the year, but serve as a pointer by setting the path for a business-friendly globalised market view.
The first issue is, of course, the Commodities Transaction Tax (CTT) which was levied in a previous Budget but never implemented. Several representations by the industry may ensure its removal in this Budget but that really leaves the situation status-quo rather than a positive step forward. The commodity futures markets are now over five years old and while the growth has been impressive, and a lot can be done so that India becomes a price-setter in the commodities where it is either a major producer or consumer on a global scale. To do that, a healthy and liquid market is needed; steps can be taken to increase liquidity and depth in the markets.
The issue of autonomy of the regulator and also warehouse/warehousing receipts are very important but, being bills which need to be tabled in Parliament, it may not be possible to make them part of Budget announcements. Similarly, much needed rationalization of taxes which prevent free movement of commodities within the country may be part of a larger tax restructuring and validation program.
But insofar as the budget is concerned and most importantly, if commodities are to be officially accepted as an asset class for investment, derivative transactions on commodity exchanges should not be considered speculative and should be adjustable with other market transactions i.e. treat them as normal business income / loss.
Secondly, currently, client and member limits are infinitesimally small compared to the total production figures and should be increased forthwith. Third, Banks, Mutual Funds and FIIs should now be allowed to invest in commodities trading in line with global practices. Commodities are a globally accepted asset class now and should be treated as such.
Finally, the system of arbitrary bans on futures trading of commodities should be stopped and replaced by a transparent, graded margining system in case the government feels inclined to modulate temporary market price volatility. In fact, all commodities futures currently banned should be re-listed with newly specified margins. Options trading too should be allowed as it can help in healthy, liquid markets and obviate the need for excessive control. For healthy commodities markets, currency futures markets too need to be liberalized in terms of FII participation and client limit size so that the full benefits of globalization can be enjoyed by Indian citizens.(Jayant Manglik is president of Religare Commodities)