{"id":50428,"date":"2019-07-23T19:00:36","date_gmt":"2019-07-23T13:30:36","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?p=50428"},"modified":"2019-07-23T16:34:01","modified_gmt":"2019-07-23T11:04:01","slug":"7-pm-commodities-market-needs-a-policy-push-23rd-july-2019","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/7-pm-commodities-market-needs-a-policy-push-23rd-july-2019\/","title":{"rendered":"7 PM | Commodities market needs a policy push | 23rd July, 2019"},"content":{"rendered":"\n<p><strong>Context:<\/strong> commodities\nmarket in India.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>India is primarily a commodity based\neconomy having a long history of commodities spot and forward markets. The\ntrading in the commodities market can be broadly categorized into two major\nsegments viz., spot\/physical segment and derivatives segment.<\/li><li>A commodity market is a\nphysical or virtual marketplace for buying, selling, and trading raw or primary\nproducts. Commodities are split into two types: hard and soft commodities. Hard\ncommodities are typically natural resources that must be mined or extracted-such\nas gold, rubber, and oil, whereas&nbsp;soft commodities&nbsp;are agricultural\nproducts or livestock-such as corn, wheat, coffee, sugar, soybeans, and pork.<\/li><\/ul>\n\n\n\n<p><strong>Need for commodities market in India:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Agriculture:<\/strong> agriculture market is the most potent economic force in India.\nAccording to Economic Survey 2018-19, agriculture accounts for 15% of GDP\ncontribution and 49% of employment opportunities. Commodity derivatives market\nwill give further push to agricultural sector growth.<\/li><li><strong>Doubling the farmers Income:<\/strong> On the production and supply side of the\nagricultural commodities are the farmers, whose productivity and earnings are\ndependent upon uncertainty and volatile factors like erratic monsoon and price\nfluctuations.<\/li><li><strong>Imports:<\/strong>\nIndia is largely dependent on the import of a wide range of gas and petroleum\nproducts. The energy sector has its own inherent issues like lack of adequate\ninfrastructure including transportation and storage facility and absence of an\nactive spot market.<\/li><li><strong>Not a key player:<\/strong> India is one of the largest producers of agriculture produce and raw\nmaterials like coal, iron ore and manganese. But still the commodity\nderivatives market contribution is only 6% of produce, where as global average\nis 22%. So there is scope to improve the contribution of commodity market.<\/li><li><strong>Electronic\nspot markets<\/strong> for commodities play a crucial role in integration\nof localized physical market, establishing direct link between the buyer and\nseller and providing a transparent mechanism of price discovery. Proper price\ndiscovery will give boost to farmers Income.<\/li><li><strong>Benefit to government:<\/strong> with proper and regulated market, better realization of fees\/cess or\nlevies as all trades or deliveries can be track. This could also help to\nchannelize all information to a central data base which can help in to frame\nfuture policies.<\/li><li>Improvement in liquidity of goods on\nsuch spot exchanges\/commodity derivatives may make bank finance easily\navailable against the goods stored in the warehouse. This will improve holding\ncapacity of the farmers\/producers and in the long run may incentivize farm\nproduction and reduce rural poverty.<\/li><\/ul>\n\n\n\n<p><strong>Issues\nrelated to commodities market in India:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Policy\nregulations:<\/strong> agriculture is a state subject, and the statutes to\nregulate transactions in agricultural commodities are Essential commodities act\n(ECA), 1955 and model agriculture produce market committee (APMC).<\/li><li>Under these acts state governments\ncontrol the procurement, storage and movement of commodities. However, the\noutcome of enforcement of these regulations has often been found to be lacking\nin uniformity across different parts of the state and in different states of\nthe country and in most places has led to fragmentation of the market<\/li><li><strong>Diversity\nof grades:<\/strong>\nstandardization of commodities is a pre-condition for transaction of\ncommodities. However, wide quality variations in farm produce within a state,\nand even wider variations across states, pose a challenge for defining common\nquality parameters for a commodity before the same is offered for trading.<\/li><li><strong>Assaying:<\/strong>\nScientific assaying of commodities may take some time before they can be\nrecorded into online trading system for trading. Lack of assaying\ninfrastructure &amp; regular upgradition of assaying tools limiting the growth\nof derivative market in commodities. <\/li><li><strong>Ware\nhouse &amp; transportation infrastructure:<\/strong> all the\ncontracts of spot and derivatives need proper linkage of transportation and\nstorage infrastructure. But there is no proper network of linkage among\nproducers and traders through warehouse and transportation.<\/li><li><strong>Institutional\nconflict:<\/strong>\nthe reserve bank of India recently allowed business entities with direct and\nindirect exposure to commodity price risks to hedge in international exchanges.\nThis conflicts with SEBIs approach to promote domestic exchanges.<\/li><\/ul>\n\n\n\n<p><strong>Measures\nto improve the situation of commodity derivative markets in India:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Market\nregulations:<\/strong> to improve the working of commodities market in\nIndia, need a change in market regulations. Adoption of Model APMC Act by\nStates is long overdue. And the change in existing APMC Act on the lines\nsuggested in Model APLM Act, 2017 is critical to improve the efficiency in\nagricultural markets and to integrate farm level production with end-uses.<\/li><li><strong>Multiple\nmodes:<\/strong>\nThe present system of agricultural marketing mandates sale\/purchase of\nagricultural commodities through notified market yards. So to overcome this\nissue there should be multiple modes of selling of farm produce, so that\nfarmers can sell their produce at the competitive prevailing price.<\/li><li><strong>Farmer\nproducer organizations (FPOs):<\/strong> In India, the average size of\nagricultural land holding is very small, and each farmer makes individual bid\nto sell his produce at the market yard and most of times fetches low prices due\nto low scale and weak bargaining power. So the government should promote\nformation of FPOs.<\/li><li><strong>Storage:<\/strong> to\nget the desired price for farmer warehouse storage facilities is imminent. So\ngovernment created Warehousing Development and Regulatory Authority (WDRA), and\nentrusted with the responsibility to register and regulate the warehouses which\nissue \/ intend to issue Negotiable Warehouse Receipts (NWRs). Presently there\nis a need of streamlining governance of warehousing under WDRA.<\/li><li>India does not have a regulated\nwarehouse infrastructure for nonagricultural commodities (gold and silver) and\nthey are left to the producers and suppliers who have their own\nwarehousing\/delivery points. WDRA should actively pursue developing rules for\nregistration of warehouses storing non-agricultural commodities.<\/li><li>In the sectors such as base metals,\nprecious metals, gems and stones, there is a perception of opaqueness,\nparticularly due to the fragmented nature of the industry. Steps may be taken\nto improve the transparency by increased registration of enterprises, higher\ndiscipline in quality testing \/ assaying, financial reporting and tax payments\nas well as increase the share of organized sector in markets of such\ncommodities.<\/li><li><strong>Assaying\nfacilities:<\/strong> Assayed goods are found to fetch better prices as\ncompared to mixed\/non-assayed lots. So Awareness programs for the farmers\nshould be carried out to highlight the benefits of the assaying.<\/li><li><strong>Improvements\nin e-NAM:<\/strong>\nEach eNAM\/APMC market should have appropriate storage facility to provide cost\neffective warehousing facilities to the sellers (farmers) so as to avert\ndistress sale. Along with that the Mode of payment should ensure prompt payment\nfrom buyer to farmer. APMC markets should move towards electronic payments.<\/li><\/ul>\n\n\n\n<p><strong>Way\nforward:<\/strong>\nCommodity Derivatives markets are a good source of\ncritical information and indicator of market sentiments. Since, commodities are\nfrequently used as input in the production of goods or services, uncertainty\nand volatility in commodity prices and raw materials costs affects businesses\nand can be significant given that commodity prices are driven by supply and\ndemand from domestics as well as global markets. Ability to manage or mitigate\nrisks by using suitable hedging in commodity derivative products, can\npositively affect business performance. So the government should take correct measures to improve the\nperformance of commodity derivative markets.\n\nSource:\n<a href=\"https:\/\/www.thehindubusinessline.com\/opinion\/columns\/commodities-market-needs-a-policy-push\/article28657307.ece\">https:\/\/www.thehindubusinessline.com\/opinion\/columns\/commodities-market-needs-a-policy-push\/article28657307.ece<\/a>.\n\n\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context: commodities market in India. India is primarily a commodity based economy having a long history of commodities spot and forward markets. The trading in the commodities market can be broadly categorized into two major segments viz., spot\/physical segment and derivatives segment. A commodity market is a physical or virtual marketplace for buying, selling, and&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/7-pm-commodities-market-needs-a-policy-push-23rd-july-2019\/\">Continue reading <span class=\"screen-reader-text\">7 PM | Commodities market needs a policy push | 23rd July, 2019<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":49370,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,9],"tags":[],"class_list":["post-50428","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-7-pm","category-public","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2019\/07\/7-PM.png?fit=1000%2C500&ssl=1","views":{"total":0,"cached_at":"","cached_date":1704765132},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/50428","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=50428"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/50428\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/49370"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=50428"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=50428"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=50428"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}