National Commodity Derivatives Exchange Limited (NCDEX) is India’s largest Exchange offering derivatives trading in Agri-commodities. Regulated by the Securities and Exchange Board of India (SEB), NCDEX offers a bouquet of benefits to every value chain participant in commodity markets. The shareholders of NCDEX are prominent players in their respective fields and bring with them institutional building experience, trust, nationwide reach, technology and risk management skills.
As of December 31, 2019, the Exchange offers Futures contracts in 20 agricultural commodities and options contracts in 4 agricultural commodities and it is backed by high-level technology, WDRA approved warehouses, fast clearing and settlement process etc. The Commodity Futures Prices that are traded on Exchange’s platform are considered to be the benchmark by all the value chain participants for better decision making. The Exchange has played a crucial role in augmenting farmers’ income. Not does only the Exchange enables the farmers to hedge their price risks using commodity derivatives, but it also helps the farmers to price their goods more accurately even if they are not active in the Futures market by way of enhancing their bargaining power. Today more and more farmers are able to take far more informed decisions.
In establishing and maintaining an online Futures market for different agricultural commodities, NCDEX has helped increase market transparency. The price discovery happening on the NCDEX platform also helps the farmers in better decision making when it comes to which crop to grow in next year.
NCDEX is hopeful that there will be a focused approach towards the agriculture and commodity sector in the upcoming budget. Their Expectation for Agri Commodity Sector in the Recent Budget Feb 2020 is outlined as follows:
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Recent guidelines by SEBI allowing exchanges to launch options on goods is a progressive step. It will play a major role in stimulating agricultural marketing and enable us to launch options on goods suitable for farmers and traders in all the commodities
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FPOs have the potential to adapt, augment and catalyse various reforms envisaged towards government’s vision of doubling farmers’ income. Relaxation of mandi taxes will encourage the collective selling of their produce, making them competitive in the market and help increase their incomes
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Banks should be mandated to extend agri-credit only against eNWR. Augmenting it with an appropriate credit guarantee structure by WDRA would further enhance the confidence amongst banks and boost Agri-financing
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The Commodity Transaction Tax (CTT) levied on processed agri commodities has increased impact cost of market participants. The Indian commodity market has immense potential, as many of these commodities can set Indian prices as benchmark for global market. Hence the government should have a relook at its CTT policy in order to ease participation of large hedgers and traders by offering low impact cost
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Further, while SEBI has opened up gate for commodity markets by allowing Mutual Fund, Indices and Options participation in goods etc, the Government should reframe its regulatory policies and start taking positions on exchange platforms for procurements or sell
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Implementation of modified and stringent borrowing policy by RBI could reduce NPA load on the banks. This would be possible if borrowers are obligated to decide minimum hedged positions and disclose their hedge positions
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If these propositions are implemented in the right direction, we are hopeful that it will help commodity markets to grow in a vibrant ecosystem, inducing positive sentiments amongst our entire value chain and participants.
