Previous

Part - II

The era of widespread shortages in many essential commodities resulting in inflationary pressures and the tilt towards socialist policy, in which the role of market forces for resource allocation got diminished, saw the decline of this market since the mid-1960s. This coupled with the regulatory constraints in 1960s, resulted in virtual dismantling of the commodities future markets. It is only in the last decade that commodity future exchanges have been actively encouraged. However, the markets have been thin with poor liquidity and have not grown to any significant level.

Indian Policy makers have traditionally coped with the uncertainty and risks associated with price volatility by resorting to policy instruments which attempted to minimize or eliminate price volatility - a virtually closed external trade regime, price control, pervasive government controls on private sector activities extensive market interventions and crop insurance.

Liberalization of Indian economy since 1991 recognised the role of market and private initiative for the development of the economy. The much maligned market instruments such as the futures trading were also given due recognition. After some halting efforts since 1994 when Prof. Kabra Committee submitted its report, the late 1990s spilling into the new millennium, saw some bold initiatives in the commodity market.

A three-pronged approach has been adopted to revive and revitalise this market. Firstly, on policy front many legal and administrative hurdles in the functioning of the market have been removed. Forward trading was permitted in cotton and jute goods in 1998, followed by some oilseeds and their derivatives, such as groundnut, mustard seed, sesame, cottonseed etc. in 1999. A statement in the first ever National Agriculture Policy, issued in July, 2000 by the government that futures trading will be encouraged in increasing number of agricultural commodities was indicative of welcome change in the government policy towards forward trading. Secondly, strengthening of infrastructure and institutional capabilities of the regulator and the existing exchanges received priority. Thirdly, as the existing exchanges are slow to adopt reforms due to legacy or lack of resources, new promoters with resources and professional approach were being attracted with a clear mandate to set up demutualised, technology driven exchanges with nationwide reach and adopting best international practices.

Next

* Contributed by -
Tushar Kulkarni,
B.E. (Electronics), Vivekanand College Of Engineering, Mumbai,
II Year - PGDBM, Sydenham Institute Of Management, Mumbai.