New Delhi, April 3: Left pressure has put paid to the government’s plans to allow foreign direct investment in commodity exchanges.

The Centre has decided to allow the Forward Contracts (Regulation) Amendment Ordinance, 2008, issued this January, to lapse without trying to turn it into law.

The Ordinance allowed foreign investment of up to 49 per cent in commodity exchanges, with an FDI cap of 26 per cent and a foreign institutional investment (FII) cap of 23 per cent, subject to the approval of the Foreign Investment Promotion Board.

Like stock markets, commodity exchanges allow a buyer and seller to fix deals at a particular rate. If the price goes down at the time of delivery, the seller gains because he has to be paid the pre-determined, higher rate; if the commodity becomes costlier, it’s the buyer who gains because he needs to pay only the promised lower price.

Except rice and wheat, most commodities are allowed to be traded on commodity exchanges in India. However, unlike stock markets, foreign investment has not yet been allowed in commodity exchanges — a restriction that will stay in force when the ordinance lapses.

Asked if the latest decision was meant to protect domestic players interested in playing the commodity market, government sources were tight-lipped.

Sharad Pawar, the food and agriculture minister, was to have piloted the bill to amend the Forward Contracts Act and incorporate the provisions contained in the ordinance. But he said it wasn’t worth his while to combat political opposition when he was already fighting on other fronts such as price rise.

Other senior ministers agreed, saying the government should not be perceived as promoting commodities trading, cited by the Left as a major reason for the rising commodity prices in the domestic market.

“We do not want to be labelled anti-farmer,” a cabinet minister said.

When the cabinet approved the ordinance, the government had made it clear that farmers would not directly participate in the futures market but take advantage of the price signals emanating from it since this was the practice the world over.

The government had hoped that foreign investors would “bring with them international best practices, new and novel product offerings as well as linkages with international markets and trading platforms,” according to an official release dated February 12.

It said reputable foreign investors such as the New York Mercantile Exchange, Merrill Lynch, Citi Bank and Passport Capital had shown interest in investing in the national commodity exchanges.

The ordinance was to lapse on April 7. According to the law, an ordinance is alive for only six weeks from the start of a parliamentary session. So, the bill to enact the ordinance should have been listed in the first half of the budget session, which broke up for a four-week recess on March 20.

Theoretically, the government can still move an amendment to the Forward Contracts Act in the second leg of the budget session. But aware that the Left and the Opposition will corner it on inflation, the government decided to err on the side of caution, the minister said.