(a) whether the Government proposes to allow domestic and foreign
institutionalised investment in commodity futures trading,
(b) if so, the details thereof,
(c) whether the Government proposes to amend the relevant laws in this regard;
(d) if so, the details thereof; and
(e) the benefits likely to accrue to the common man therefrom7
THE MINISTER OF STATE (INDEPENDENT CHARGE) FOR CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION (PROF. K. V. THOMAS)
(a)& (b) : At present under the Forward Contracts (Regulation) Act, 1952,
there is no restriction on participation by local and foreign institutional investors
in commodity futures trading. However, the Department of Industrial Policy and
Promotion has laid down the policy on foreign direct investment(FDl) and foreign
institutional investment (Ftl) in commodity exchanges. Foreign investment is
permitted under a composite (FDl & Fll) cap of 49%, under the Government approval
route-i.e. through the Foreign Investment Promotion Board (FIPB). Within this overall
limit of 49%, investment by Registered FIls, under the Portfolio Investment
Scheme (PIS) is limited to 23% and investment under the FDI Scheme is limited
to 26%. As regards participation by institutions such as banks, insurance companies,
pension funds, etc. is concerned, there is no restrictive provision on their
participation in the Forward Contracts (Regulation) Act, 1952. All such entities
however need to be permitted by their respective regulators under relevant laws.
(c) & (d): The Government proposes to amend the Forward Contract (Regulation)
Act, 1952 to inter-alia provide for registration of foreign intermediaries/participants
in commodity derivatives market. The proposed amendment also provides for suspension
and cancellation of registration by the Regulator, FMC.
(e): The functions of futures market are price discovery and price risk
management. The participation of Banks and Mutual Funds and Foreign Institutional
Investors would bring the necessary breadth and depth to enabie the corporate entities
to hedge their price risk in Indian commodity markets. These entities may also bring
in larger participation from professionals, which would improve the quality of these
markets. Banks themselves will be able to hedge their price risks arising out of their
exposure to commodity traders and processors as a lender. Their active participation
may also promote greater credit flow to farmers.