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Door to futures opens for 54 commodities

New Delhi, Feb. 20: The Cabinet Committee of Economic Affairs (CCEA) today approved futures trading in 54 commodities including foodgrains and pulses, oilseeds, oil and oil cake, spices, gold and silver. The CCEA removed restrictions placed on establishment of forward contracts in these commodities and granted permission to the setting up of futures exchanges, an official spokesperson of the government told reporters here today.

Futures in these commodities can now be traded under three broad categories. These are foodgrains and pulses which include wheat, gram, jowar, bajra, maize, ragi, small millet, tur, urad, mung, moth, masoor dal, kulphi, peas, lakh, barley, guar, rice, arhar chuni, mung chuni, tur dal, urad dal, mung dal, gram dal and khandsari sugar. The second category of commodities comprises oil seeds, oil and oil cake. These include linseed, linseed oil, linseed oil cake, celery seed, cotton pods, cotton yarn, cotton cloth, art silk yarn and raw jute.

The third category of commodities consists of spices, including methi, coriander seeds, aniseed, pepper, betelnuts, cardamom, chillies, cinnamon, cloves, ginger, nutmegs, shellac, seedlac, chara or berseem, camphor and gram husk (gram chilka). Future trading has been permitted in gold, silver, silver coins, copper, zinc, lead and tin.

Futures trading allows traders to fix a price for supply and purchase of a commodity at a pre-determined future date. India had not allowed futures in these commodities earlier fearing that this could lead to various kinds of manipulation by traders creating artificial price hikes. Future trading in these newly permitted commodities will be taken up by recognised commodity exchanges which will be allowed on the basis of their application, studies and capabilities, the official spokesperson said. Interested exchanges will apply to the forward markets commission after conducting feasibility tests.

The commission, which acts as the market regulator for this sector, will permit new futures exchanges or old futures exchanges which want to broadbase their trading scope after going through the feasibility study and approval of by-laws.

Futures contracts perform two important functions. These include price discovery and price risk management with reference to the given commodity. This is useful to the producer as he gathers a market perception of the price likely to prevail in future and therefore can decide between various competing commodities. By this time, the producer can do proper costing and also cover his purchases by making forward contracts. Futures trading is very useful to exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in quoting a realistic price and secure export contracts. Having entered into an export contract, it enables him to hedge his risk by operating in futures market.

Other key CCEA decisions

In another decision, the government approved setting up of the price stabilisation fund for plantation crops like tea, coffee, rubber and tobacco in order to safeguard the interest of growers. The CCEA approved the proposal of the department of commerce for implementation of the scheme from April this year for a period of 10 years. The total corpus of the fund is Rs 500 crore.

The Centre has also approved the construction of four major projects costing Rs 627.89 crore under the National Rail Vikas Yojna for strengthening golden quadrilateral and rail connectivity for ports and hinterland. The projects include: Construction of a third rail line between Aligarh-Ghaziabad and Khurda and Barang, doubling of railway line between Cuttack and Barang and Raichur and Guntakal.

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