The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged the Government to permit banks as intermediaries in commodities futures market to increase the penetration of savings instruments and upgrade financial literacy in rural areas as well as to ensure that the economic benefits of development spread beyond urban pockets.
 
"Though the country has a high savings rate, the participation of urban population with high incomes in the agricultural segment is minimal due to lack of suitable investment opportunities and absence of credible intermediaries dealing with agri-based investment products," the industry body said.
 
According to it, commodity futures as financial instruments are easier for urban people to understand and the Government should facilitate channeling their investments. The primary result of such participation will be to improve the depth of market and price discovery, it said.
 
ASSOCHAM said that banks, however, were not permitted to engage in commodity derivatives business. “By virtue of their vast branch network, banks are in a unique position to display tickers showing real-time prices of various commodities across the country which will be the most efficient price discovery dissemination that could be implemented in a very short time,” said ASSOCHAM secretary general D.S. Rawat.
 
"Notifying commodities brokerage business carried on through a national multi-commodity exchange that facilitates electronic trading in commodities derivatives as permissible form of business in the gazette in terms of section (1)(o) will enable banks to participate in commodity trading as intermediaries either directly or indirectly through subsidiaries," he said.
 
"A wide variety of agricultural commodities, crude oil, base and precious metals are actively traded in India through three online exchanges – NCDEX, MCX and NMCE. Organised commodity futures trading offer a viable, efficient and globally-accepted alternative to manage the price risk and hence improve agricultural growth," Rawat said.
 
He said many banks – especially nationalised banks – had been engaging in agriculture and rural-based activities and commodity futures will adapt well to their business.
 
"Such participation will transform commodity futures into an effective tool for national development," Rawat said in a communication to the Finance Ministry, the Reserve Bank of India and the Ministry of Consumer Affairs, Food and Public Distribution.

Source: netindian.in