Business

NCDEX seeks unified licence

Special Correspondent

Approaches seven State governments for spot trading

CHENNAI: The National Commodity and Derivatives Exchange Ltd. (NCDEX), an online multi-commodity exchange, has approached select State Governments seeking permission to do spot trading.

Addressing a press conference here on Tuesday, P. H. Ravikumar, Managing Director and Chief Executive Officer, said NCDEX had approached seven State Governments for granting the exchange unified licence to undertake spot trading.

Spot markets come under the purview of the State Governments. Futures markets, however, come under the regulatory ambit of the Central Government.

Mr. Ravikumar said the NCDEX-like outfits were themselves virtual marketplaces connected to the country as a whole. Hence, he said, the NCDEX should be given a unified licence (currently, each mandi needs an independent licence).

The Managing Director said the State Governments were required to amend their respective agricultural produce marketing Acts to facilitate NCDEX-type online commodity exchanges undertake spot trading.

Mr. Ravikumar said he was in favour of allowing banks to sell options to farmers. An option is a mechanism to hedge risk arising out of price fluctuations. He said a committee constituted by the Reserve Bank of India had in fact recommended option trading, but no action had been taken on this front. Since banks had been giving crop loans to farmers, they were better positioned to sell options to farmers, he said.

Mr. Ravikumar said the Government could save Rs. 13,000 crore in food subsidy if the commodity exchanges were used in procurement of food products for supply to the public distribution system. Currently, the Food Corporation of India (FCI) procured agricultural commodities.

The physical handling of commodities by the FCI also meant huge transportation and holding cost. The FCI could rather ask an exchange like the NCDEX to procure specified quantity of a commodity and deliver at a point. The farmers could then deliver the goods on specified dates at the agreed centres.

The procurement policy had twin objectives—to provide fair price to farmers through the ‘minimum support price’ mechanism and to create a buffer for food security.

Mr. Ravikumar felt that the FCI should separate the two functions. It should take physical delivery only for the purpose of building a buffer. He wanted the minimum support price concept – which came in the wake of the Green Revolution – to be revisited.

Mr Ravikumar said he was not certain if farmers would deliver if the spot prices were higher than the contracted prices.

Nevertheless, he said the NCDEX would protect itself by collecting mark-to-market margins from farmers, through the banking system.

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