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Our Bureau

Kochi , June 15

AN internal committee of the Forward Markets Commission (FMC) will soon come out with recommendations on the proposal to allow mutual funds and foreign institutional investors to invest in the country's commodity futures market.

After the committee submits its report, the Government will take a decision on mutual fund, FII investment as well as options trading in commodity futures, said Mr S. Sundareshan, the FMC Chairman. "We hope these issues will be resolved in this fiscal year," he said.

Mr Sundareshan was speaking to mediapersons on the sidelines of the Indian International Commodity Fair, which began on Wednesday.

To permit options, the Forwards Contracts Regulation Act 1952 needs to be amended, for which a draft Bill is being readied. It will soon be submitted to the Cabinet for approval.

Multi-commodity exchanges in the country have been demanding that mutual funds and FIIs be allowed to participate in the commodity market. They also want a wider definition of commodities to include more sophisticated products such as weather derivatives.

Mr Sundareshan said a sub-committee set up by the Reserve Bank of India is looking into the proposal to allow banks to play a role in commodity exchanges.

The FMC, which was once supposed to restrict futures trading in commodities, is now fast changing to adapt to the new circumstances in a liberalised environment, the Chairman said. With the proposed amendment in the Forward Contracts Regulation Act, it plans to emerge as an independent regulator and facilitator for commodity futures trading in the country, on the lines of the Securities and Exchange Board of India. More officials and technology are now being inducted into the FMC towards this.

Volumes surge: Mr Sundareshan said the 24 commodity exchanges in the country together recorded a volume of $129 billion (Rs 5.71 lakh crore) in 2004-05, registering a whopping 440 per cent growth over the previous fiscal.

"This is a dramatic increase when compared with the Rs 30,000 crore a few years ago," he said. Commodities such as guar seeds, soya, castor seeds and metals such as gold and silver have helped the futures trade achieve this growth.

Ninety commodities are being traded in the country in 24 exchanges, including the three large national multi-commodity exchanges. Active participation of stakeholders of each commodity, rather than speculators and fly-by-night operators, takes place in the futures market, said Mr Sundareshan.

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