• PAGE ONE
• INDEX
• HOME

Is NTSD cotton contract on way out?

G. Gurumurthy

COIMBATORE, July 3

GOING by the mood among cotton trade associations and the current thinking in the Forward Markets Commission (FMC), it is likely that the non-transferable specific delivery (NTSD) cotton contract system may be disbanded before long.

The factors favouring the FMC, the Government agency regulating forward trading in commodities, to adopt such a course of action are the pressures being exerted by various regional cotton associations against continuing with NTSD contracts and the advent of cotton futures trading.

Though the FMC officials would not like to come out openly on this issue right now, the commission has begun its exercise in this direction. ``'We are hearing the views of the representatives of various cotton bodies on the utility or otherwise of contin uing with the NTSD contract for cotton'', said Mr. K C Mishra, chairman, FMC.

Mr. Mishra had an interaction in this regard with the members of the South India Cotton Association (SICA) here recently.

NTSD contract for cotton, introduced in 1967 as a regulatory instrument to ensure registering every cotton transaction between the buyer and the seller under the respective cotton associations, was brought forward as a statutory instrument once the Gover nment disallowed cotton futures trading then.

Trading in NTSD contract was also allowed by FMC to partly meet the vacuum caused by the ban on cotton futures.

But the major impediment encountered in the NTSD contract system is in respect of its compliance and according to cotton traders, monitoring and enforcement of compulsory registering of cotton contract under NTSD system became difficult.

``The attendant legal issues arising out of such contracts are also felt too complicated for these trade bodies to handle, with the result, today less than 20 per cent of the cotton transactions are only being registered under NTSD in the country as most of the buyer-sellers feel the NTSD contract system failed to serve any purpose'', maintained Mr. K. N. Viswanathan, secretary, SICA.

SICA has represented to FMC to do away with the NTSD contract system as it felt that NTSD would be redundant in the wake of the 1996 new Arbitration and Conciliation Act. The Act would enable speeding up of arbitration and redressal of trade disputes su ch as those involved in cotton transactions.

SICA has now appointed a sub-committee to go into amending its by-laws on arbitration, sychronising with the new Arbitration Act.

It is learnt that East India Cotton Association, the country's premier cotton body, too has expressed its reservation against continuing with the NTSD saying the system has failed to deliver goods.

While EICA and SICA are allowed to transact all cotton varieties grown in the country under NTSD contract and its trading by its members, the other regional cotton associations are presently being permitted in NTSD contract trading only for those cotton varieties specific to their region.

The inability to enforce the NTSD contract for cotton transactions and the difficulties caused by the legal wrangles are said to be among the main reasons for huge payment outstandings seen in the cotton market.

The FMC's rethinking on the NTSD contract system, it is said, is largely due to the Government's pointed move towards establishing multi-commodities futures trading at national level which would include the cotton futures too.