Commodities Transaction Tax should be reduced: Religare Sec

Budget should take steps to make commodities markets in India more vibrant. Taxation issues should be resolved and more investments should be encouraged into real infrastructure such as warehouses, cold storage logistics to ensure low wastage.

Any budget raises hopes, especially the first full-fledged one of a new government. This team has also had the privilege of a run up of 9 months to the budget after winning the elections, which has given them enough time to understand the issues at hand. And I must say the time has been utilized well.

On the commodities front, some of the expectations are old while others are new. But the ultimate aim of the budget should be to free our commodity markets and integrate them into the global economy to take maximum advantage of opportunities and get international buy and sell prices commensurate with our production and consumption numbers. While global factors significantly affect commodity prices of bullion, metals and energy, prices of agri-commodities are more affected by domestic policies because we provide them a level of necessary protection. Like every earlier year, agriculture will be a key focus area in this budget and this is an opportunity to address the most crucial issues in this sector.

The fundamental issue is, and has always been, that of adequate funding to lay out effective and comprehensive infrastructure for farming to improve productivity and permanently bring down food inflation. Institutional credit by way of availability of seeds, fertilizers and such at low prices will help raise productivity. Also, the Mandi Acts in different states need to be revisited and a national Act allowing free movement of good, perhaps with a single pay-point and a smart card to track goods movement, should be mooted. Real implementation of GST is a step in that direction. Then, wastage adds 30% to the cost of farm products and that is largely due to lack of suitable storage infrastructure; a policy to encourage a supply chain network – of warehouses and cold chains for example – will go a long way in holding prices low and ensuring availability everywhere. In fact, one of the biggest factors to focus on is storage of goods across the country which, given the scale and size of the mission and the investment and project execution skills required, will work best in Public Private Partnership format. The scope should include not only storage but also procurement and distribution for an integrated approach and the budget is the right platform to address this national requirement. 

The key message in the budget should be that we are a business-friendly globalized market and the medium term goal should be the ability to become a price-setter in the commodities in which we are among the larger producers or consumers of the commodity e.g. wheat, sugar and vegetable oils. Negotiable warehouse receipts are soon to become reality with the setting up of the Warehousing Regulator and incentives for creating infrastructure to support physical commodities trade will make it a winning combination. 

The contentious Commodities Transaction Tax (CTT) should be reduced to Rs 1 per Crore of trading to encourage the fledgling but high-potential new industry and the amount collected should be diverted to improving warehousing & infrastructure facilities. There is also a strong need for a structured and common clearing and settlement system across products – equity, commodity and currency. This has been touched upon by earlier governments but should be implemented in earnest. This will strengthen our risk management systems and reduce transaction costs in markets. There is also a need to increase market participation by allowing banks to hedge the commodities they have exposure in their lending book. Allowing FIIs and MFs will add depth, prevent price manipulation and facilitate hedging by large corporates. And these participants will need new products like options and indices to enable efficient markets. Importantly , primary sector reforms are necessary including enabling sale on competitive market prices as against minimum support prices guaranteed by the government. 

The wish list is long but a firm start with a clear road map will be beneficial for India in the long run.

Commexes’ turnover drops 43% to Rs 48.5 lakh cr

Turnover of commodity exchanges fell 43 per cent to Rs 48.54 lakh crore till January 15 this fiscal due to poor participation.

According to the Forward Markets Commission (FMC), these exchanges had generated business worth Rs 85.28 lakh crore between April and January 15 last financial year.

According to the latest data released by the Forward Markets Commission, there was decline in turnover in almost all commodities.

The maximum decline in turnover was reported in bullion, metals, energy and agricultural commodities.

Turnover from bullion fell 54 per cent to Rs 17.17 lakh crore during April-January 15 of this fiscal from Rs 37.39 lakh crore in the year-ago period.

Similarly, the business from base metals like copper declined 39 per cent to Rs 12.48 lakh crore from Rs 20.49 lakh crore, while the turnover from energy items fell 34 per cent to Rs 10.07 lakh crore from Rs 15.14 lakh crore.

Turnover from agriculture commodities dropped 28 per cent to Rs 8.81 lakh crore during the April-January 15 period of this fiscal against Rs 12.25 lakh crore in the same period previous year, the FMC data showed.

Experts said lack of volatility in commodities market and high transaction cost have kept many investors at bay, while the Rs 5,600-crore scam at the commodity spot exchange NSEL has also dented investor confidence.

Currently, there are four national-level and six regional-level commodity exchanges operating in the country.

Turnover of commodity exchanges down 65% in Q1: FMC

The turnover of commodity exchanges fell sharply by 65 per cent to Rs 14.55 lakh crore in the first quarter of this fiscal due to poor volumes in most commodities, the Forward Markets Commission (FMC) said.

The turnover at these commodity bourses stood at Rs 41.45 lakh crore in the same period last year.

Much of the fall was seen in bullion followed by energy, metals and agricultural commodities, FMC data showed.

According to the FMC, the turnover from bullion fell by 73 per cent to Rs 5,23,030 crore in April-June this year, against Rs 19,38,548 crore in the same period a year ago.

Similarly, the business from futures trading in energy commodities such as crude oil declined by 70 per cent to Rs 3,18,662 crore from Rs 10,45,990 crore, while the turnover from metals dropped by 61 per cent to Rs 3,12,859 crore from Rs 7,93,213 crore in the review period.

The turnover from agriculture commodities also fell by 18.23 per cent to Rs 3,00,690 crore in April-June of this year, as against Rs 3,67,711 crore in the corresponding months of 2013-14.

Analysts attributed the falling volumes to higher transaction cost after the imposition of commodity transaction tax (CTT) and the dent in investors’ confidence in the wake of the Rs 5,600 crore-payment crisis at the commodity spot exchange NSEL.

There are five national and nine regional level bourses operating in the country.

‘Both STT, CTT rates are already very low’ says Revenue Secretary

Cannot understand the expectation to lower them further, says Revenue Secretary

The stock and commodities market seem to be disappointed as the Budget has not revised the Securities Transaction Tax (STT) and the Commodities Transaction Tax (CTT). What was the reason behind this decision?

I don’t know what is the expectation? Because the current rates, of both STT and CTT, are very low. And we have also prescribed that if you have paid the CTT, income from such a transaction will not be treated as speculative income. This, by itself, is a very strong signal. There has to be a tax and rates are very low.

People were also expecting some relief on gold — of import duty being lowered from 10 per cent. Since duty revision can happen outside the Budget, can we expect something during the current fiscal?

The current account deficit, like the fiscal deficit, had been a matter of concern. Things have improved. CAD came down at the end of the last fiscal.

But we need to be cautious, considering the volatility in international markets. International crude prices are rising due to the Iraq problem. So, we have to wait and see how that plays out.

Does this mean there will be no immediate relief on gold?

I cannot say about the future. As of now, all I can say is that there is no decision to reduce the duty. The position is constantly changing, we will see.

Commex trades not speculative if commodity transaction tax's paid

Traders and business houses which traded commodities exempt from commodity transaction tax (CTT) on recognised commexes and adjusted losses or gains arising from such transactions against business income or losses will not be allowed to offset such transactions any longer.

This is because the Budget spells out that such offsetting of transactions can be done only in respect of commodities traded on recognised associations (by CBDT) and on which CTT has been paid. This will be applied retrospectively from April 2014. Such transactions have been declared as non-speculative or eligible ones for offsetting.

Earlier, if CBDT recognised a commex that collected CTT, all transactions done on it were deemed non-speculative. But the government has now modified the previous rule, in line with a notification in January this year, that only transactions done on a CBDT recognised exchange and on which CTT has been paid are not speculative, explained Anil Mishra, MD & CEO, Ahmedabad-based commex NMCE.

However, another commex official on condition of anonymity, said a trader will also continue to be able to adjust business loss/profit against that from non-CTT commodity futures contract so long as these transactions result in delivery.

Section 43(5) of the income tax deems transactions in commodity, including stocks and shares, but excluding derivatives on recognised stock bourses, as speculative if they do not result in delivery.

Speculative loss/gain can be offset only against speculative loss/gain and carried forward for 4 years, while non-speculative gain/loss can be offset against speculative loss/gain and business loss/gain and carried forward for 8 years.

CTT was announced by the UPA government in the Budget for FY14 and began to be imposed from July last year.

Commodity investors get the cold shoulder, No relief from transaction tax, 80:20 rule too not eased

No relief from transaction tax, 80:20 rule too not eased

Participants in the commodity market had given a long wish list, but they have been left disheartened by the Finance Minister.

Their request for removing commodity transaction tax on non-agricultural commodities has not been granted.

Also, gold jewellers who have been long lobbying for lifting of gold import restrictions and reduction in gold import duty have been left high and dry.

Stocks of Tribhovandas Bhimji Zaveri (TBZ), Titan Company and Rajesh Exports traded in the green when the market opened, but pared their gains after the Budget was table in Parliament.

TBZ and Titan ended five per cent lower for the day.

Markets in a tizzy

This has been as bad year for commodity trading like 2013, when turnover at the commodity bourses dropped 28 per cent.

MCX, the largest commodity futures bourse with large chunk of the volumes from bullion and energy contracts, has seen its turnover nosedive.

Now, the monthly turnover on MCX is just a third of what it used to be in 2013. Average monthly turnover in gold and silver contracts has more than halved.

Industry observers say the levy of CTT is the major reason for fall in volumes on the commodity bourses as it has hit margins of arbitrage traders.

Introduced in July last year, the Commodity Transaction Tax was being levied at the rate of 0.01 per cent on the sell side and is applicable on all non-agricultural commodities including gold, silver, industrial metals and energy and a few agricultural commodities.

Though the levy is just 0.01 per cent of the contract value, the new tax has increased the cost of trading by 18-20 per cent.

Losing sheen

Jewellers have nothing to celebrate either.

As the Government announced the 80:20 rule giving all gold importers an export obligation, the premium on gold bars in the spot market in Mumbai touched a high of $110/ounce in January. But since then domestic jewellery demand has not been great.

The Government also lifted some curbs on gold imports, so much of the premium has evaporated.

However, gold jewellers wanted the Government to reduce import duty and go easy on the 80:20 rule and free them from export obligations in the Budget.

But, both these haven’t happened. Official gold availability in the country may thus continue to be tight, warranting premium. Currently, the premium in the market is around $5-10/ounce.

Lowering of STT, CTT unlikely

 

Transaction taxes on stocks and non-agro commodity trading are unlikely to be lowered in the Budget. If it happens, this will disappoint both the stock market and the commodity market. The stock market and its regulator SEBI wants Securities Transaction Tax to be lowered, while the commodity futures market and its regulator FMC appealed for complete removal or lowering of Commodity Transaction Tax.

However, considering the revenue constraints, Finance Minister Arun Jaitley may not oblige the exchanges. In the interim Budget, collection through STT in 2014-15 was estimated at ₹5,992 crore against collection of little over ₹5,000 crore in 2013-14.

There is no estimate available for Commodity Transaction Tax separately, which was introduced on non-agri commodities last July.

Commodity Transaction Tax to be diluted in Budget

The Commodities Transaction Tax is likely to be revamped in the coming budget.

Under the new system, compulsory delivery-based contract may be exempted from the tax, which means only speculative trade will attract the levy.

This tax was imposed on July 1, 2013 on the line of securities transaction tax.

It is levied at the rate of 0.01 per cent on all non-agricultural products such as gold and silver and even on processed agricultural processed products such as sugar. At this rate, tax for trade worth ₹1 lakh would be ₹10.

Volume dips

Data from the Forward Market Commission reveal that cumulative value of trade during April-May this fiscal dropped to ₹9.53 lakh crore from ₹28.16 lakh crore in the same period a year ago, a dip of 66 per cent.

“Volume has come down which is affecting fair price discovery,” SC Agarwal of SMC Securities, a Delhi-based equity and commodity trading firm, said. Traders also alleged that this tax made exchanges 350 per cent more expensive.

At the same time, non-agricultural commodity consist of over 80 per cent in total trading, which is why trade has been affected.

Though, participants want the tax to be removed completely, there are no such indications as of now.

Many market players raised the demand for doing away with the transaction tax completely before the Finance and Economic Affairs Secretary Arvind Mayaram during a conference organised by Commodity Participants Associations of India on Saturday.

Regulator’s wish list

Meanwhile, the FMC has pressed for lowering the transaction cost.

This was conveyed during Finance Minister Arun Jaitley’s meeting with all the regulators of financial sector in Mumbai few days ago.

Government mulling changes in Securities Transaction Tax and Commodities Transaction Tax

The government is mulling changes in the transaction tax levied on trading in stocks and securities, a levy that is generally considered regressive and its removal can spur the markets further by lowering transactions cost and increasing liquidity. 

Although the market has been demanding a complete withdrawal of the Securities Transaction Tax (STT) and the Commodities Transaction Tax (CTT), the government may initially settle for their removal only on delivery-based trades, a senior government official hinted. 

At least two regulators — the Securities & Exchange Board of India and the Forwards Markets Commission — have also sought removal or rationalisation of these taxes. 

"Indian securities markets are being exported outside of the country and this is largely due to high transaction costs....There is a need to relook at these if the country is keen to become an attractive financial centre," the official said on condition of anonymity. However, given the country's high fiscal deficit, the government will consider the revenue implications of the proposal before taking a call. 

STT earns nearly Rs 6,000 crore revenue a year. The tax was introduced by the then finance minister P Chidambaram. In lieu, the long-term capital gains tax was abolished and the tax on short-term gains lowered. 

Market participants and commodity exchanges have pointed out that these taxes were coming in the way of markets gaining depths as as they increase transactions cost, which reduces market participation and lowers liquidity. 

In case of stocks, STT is levied at the rate of 0.1% on both the seller and the buyer. On derivatives, the tax ranges from 0.01% to 0.125% and is levied on the seller only. 

Sebi has demanded removal of STT on at least one leg of transaction, stock purchases, as also CTT on delivery-based transactions. FMC has also asked the government to remove CTT on such transactions besides on some processed foods such as coffee and guar gum. 

"Transaction taxes hurt volumes....World over, the trend has been to reduce transactions costs for market participants," the official quoted earlier said. 

CTT is levied at the rate of 0.01% of the transaction value on the seller for trading in all non-agricultural commodities such as gold, silver, crude, zinc, copper and aluminium. 

A high-level expert panel headed by senior economic advisor in the finance ministry D S Kolamkar has pitched for allowing banks, financial institutions and foreign firms participate in commodity futures trading to deepen domestic markets. 

Exchanges should explore new ideas in contract design, to more tightly define the product with a narrower set of grades and locations, so as to reduce the frictions of arbitrage and, thereby, improve hedging effectiveness wherever the movement of prices of the commodities across grades and locations are not aligned, the panel had said. 

"Commodities markets need a whole set of reforms as also reduction in transaction costs," 

Abolish CTT, restore investor confidence in commodity market

While the stock market is expecting that Jaitley would remove STT—at least partially, a similar tax under the name of CTT implemented in commodity futures market needs to be abolished to help the industry grow.

As the Narendra Modi government gets ready to present its first national budget, there is an urgent need for the apex commodities regulator—the Forward Markets Commission (FMC)—to pitch for the abolition of Commodities Transaction Tax (CTT) and plead before Finance Minister Arun Jaitley to save the commodity futures market.

Reports in the media say that the apex stock market regulator—the Securities and Exchange Board of India (SEBI)—officials have met with the Finance Minister to demand the removal of Securities Transaction Tax (STT). Stock exchanges and traders are hoping that abolition of STT would be a major announcement in the budget that Jaitley would present a few days from now.

Currently, an investor buying shares through a broker is charged 0.1 percent STT at the time of buying and selling. Ever since the introduction of STT a few years back, volumes in India’s two national stock exchanges—BSE and NSE—have considerably come down on account of the increased transaction costs.

SEBI, stock exchanges, brokers and investors have been complaining that transaction costs of buying and selling shares in India are huge compared to other financial markets in the world. This has hurt investor sentiments and reduced liquidity, turning Indian stock markets less attractive in the emerging markets.

While the stock market is expecting that Jaitley would remove STT—at least partially, a similar tax under the name of CTT implemented in commodity futures market needs to be abolished to help the industry grow faster and better.

Former finance minister P Chidambaram introduced CTT in commodity futures trading in last year’s budget. It was then strongly opposed by commodity exchanges, traders, brokers and investors. Commodity trading in India is just 10-year old, and the government is yet to open up the futures trading sector with the result that banks, FIIs and mutual funds are not allowed entry into commodities trading market.

In India, more than 80% of the trade volumes take place in bullion, metals and energy and hence CTT has resulted in a significant drop in trade volumes in these segments that drove commodity futures business. Unlike in stocks or agri commodities, daily movements in the above mentioned commodities are generally very low, resulting in most of the profits that a trader makes are lost in the existing charges. Bullion, metals and energy prices are closely linked to international price movements and hence trade volumes have shifted to such global exchanges as hedgers try to minimise risk in commodities trading. This could result in India losing its place of pride in the international markets- that of having one of the top gold, silver and energy online exchanges in the world.

In Indian stock markets, STT was introduced after the market matured and attained huge trading volumes while electronic trading in commodity futures were introduced only 10 years back and the sector is still suffering from growth pangs. Hence the broking community is of the view that CTT should be abolished until the market attains sufficient trade volumes and depth.

Ever since CTT was introduced, in the last one year, volumes in commodity exchanges have drastically come down. To be specific, volumes at MCX and other national commodity exchanges are just a third of what it used to be an year ago.

Commodity futures market began losing steam in July 2013 when the government introduced CTT. CTT of 0.01 per cent on the sell side on all volume commodities in bullion and metals ensured that cost of trading shot up by at least 20 per cent. Many traders and intra-day players left commodities market as CTT virtually capped any arbitrage profit booking in trading. It is therefore essential that the new government should review CTT and remove or relax the taxing burden on the market participants.

In the last few years, the government has been debating amendments to the Forward Contract Regulation Act (FCRA) under which FMC is overseeing futures trading in India. The debate has not yet translated into action, with the results that commodity trading is still a restricted sector with banks, mutual funds and foreign institutional investors out of its ambit.

It was the BJP government under former prime minister Atal Behari Vajpayee who gave approval to set up national commodity exchanges in India in 2003. Now, a decade later, a new BJP government with a massive political mandate is in chair to the rule the country. India—one of the world’s largest consumers and producers of the largest varieties of commodities including the glittering precious metal gold—needs a more vibrant commodities futures market.

FMC needs to take up with the Finance Minister on the need to abolish CTT to bring liquidity and market depth the commodity futures trading in the country.

FMC pressurising MCX on FTIL stake sale

Business at the Multi Commodity Exchange of India (MCX) would be "seriously hurt" if no new contracts are launched beyond August, said Ramesh Abhishek, Chairman of the Forward Markets Commission.

Commodity markets regulator FMC today said it has not approved a proposal by MCX to launch new contracts beyond August as part of a strategy to put pressure on the exchange to comply with its order on reduction of the stake held by the former promoter. Business at the Multi Commodity Exchange of India (MCX) would be "seriously hurt" if no new contracts are launched beyond August, said Ramesh Abhishek, Chairman of the Forward Markets Commission. 

Also Read: Finmin issues show-cause notice to NSEL on exemptions In December, the FMC had declared MCX's erstwhile promoter Financial Technologies India Ltd (FTIL) as unfit to run any exchange after a Rs 5,600 crore payment crisis at group company National Spot Exchange Ltd (NSEL). The regulator asked FTIL to reduce its stake in MCX to 2 percent from 26 percent. The FMC had directed MCX to take concrete steps to comply with this order.

"We have not given any deadline but we are putting all kind of pressure on MCX to comply with the order. We have not approved new contracts beyond August and not approved new contracts to be launched in the 2015 calendar year as well," Abhishek told PTI. "MCX has to comply with the order by August. Otherwise, no new contracts will be approved. This will seriously hurt MCX's business," he said. FTIL is in the process of selling a 24 per cent stake in including  Reliance Capital  and Kotak Group. Bidders have sought more time to submit final bids in view of "adverse findings" in a special audit report by Pricewaterhouse Coopers on corporate governance issues at MCX. MCX is the country's leading commodity exchange. Its trading volumes have fallen significantly since the NSEL payment crisis came to the fore in July. Turnover on MCX declined 72 per cent to Rs 3,77,324 crore in April from Rs 13,26,155 crore a year earlier, according to FMC data.

Participation of banks in commodity markets long overdue

They enable even small farmers to reap the benefits of hedging

Banks are not allowed to participate in the Indian commodity derivatives markets. Such non-participation of the most important financial institution of the country – banks – is an important missing link in the evolution of this market in India.

While much has been talked about in various contexts recommending banks’ participation, the latest Report of a Finance Ministry committee suggesting steps to fulfill the objectives of price discovery and risk management in the commodity derivatives market, says: “… One way to reduce the cost of capital for the commodities trader is, to make banks … an integral part of trading in commodity derivatives.”

It is a fact that there are regulatory restrictions on part of banks too that restrict their participations in commodity futures markets. But, the fact remains that their participation in commodity exchanges is a win-win situation for all: it helps the banks, it helps commodity markets,and in the process, it helps the economy as a whole.

Risk management platform

While the above-mentioned report recognises that banks’ participations in the commodity derivatives market will contribute to the depth and width of the market, what this process also contributes to is the availability of an unparalleled risk management platform for the banks themselves, as banks also need to manage risks arising from commodity price volatility.

Thanks to globalisation of the Indian economy and business expansion of Indian banks, their exposure to rising commodity price volatility is significantly high – 19 per cent according to some estimates made in 2011-12. Yet, while banks have been allowed to manage other risks in their portfolios, they do not have any mechanism to hedge commodity price risk in an effective and transparent manner, barred as they are from entering the commodity derivatives market.

Intermediation, aggregation

Further, banks can act as intermediaries and aggregators, facilitating the risk management actions of farmers and other small players who on their own may find considerable barriers to enter this market. World-over, there are examples galore on banks’ participation in exchange-traded commodity derivatives market on behalf of farmers, enabling the latter manage risk exposure better and increase their incomes.

Mention may be made of Rabobank’s intervention in Tanzania and Nicaragua and Banco do Brasil’s intervention in the Brazilian agricultural market through issue of exchange-traded Cedula Producto Rural contracts. Many of these interventions are made through designing and offering customised hedging solutions fulfilling the requirements of farmers.

Besides, by aggregating small participants, banks enable even small farmers to reap the benefits of hedging. On a similar note, the non-farm sector, especially the small and medium enterprises, too can be a significant beneficiary of the commodity futures market, which can be increased manifold by the facilitative role provided by banks.

Releasing scarce resources

At the micro level, with a comprehensive risk management policy that encompasses commodity price risks, banks’ financial and human resources can be freed to cater to more important strategic functions. Under the evolving international regulatory regime where norms on credit and provisioning are increasingly being linked to risk assessment of banks’ portfolios, hedging against commodity price movement will actually contribute to freeing of financial resources – enabling not just achievement of priority sector targets for Indian banks, but also their overall business expansion.

Through focused deployment of appropriate credit products, these developments could, at the macro level, go a long way in smoothening and quickening the credit cycle, thereby enhancing productivity of credit.

Better liquidity, hedging

From the commodity market’s perspective, banks’ participation will help in providing the market with the much-needed long-term traction. This will help the long-term hedgers’ participation on the one hand, by reducing the overall costs of transactions (including the impact costs), and will help enhancing the hedging efficiency. There has often been a complaint from large corporates about lack of long-term traction in the Indian comexes, which inhibit their hedging efficacy. Banks’ participation will help ameliorate that concern.

A “Pareto” Improvement

Here lies the “Pareto” improvement through banks’ participation in Indian comexes. On the one hand, it will be in the interest of banks’ own sustainable growth.

On the other hand, it will help them achieve the goal of inclusive growth through market inclusion of millions of commodity producers. Thus, banks’ participation in the commodity derivatives market does not stand as a policy option; it is a fundamental economic need of the day that is long overdue

Commodity market impact will be buzzing with Modi

Commodity markets are planets floating constellation worse. Commodity turnover has fallen 70 per cent in a year. 5 national and 16 regional commodity exchanges in the country's turnover came on a 5-year low.

Never living on the radar of investors trading in gold and silver fell by 75 per cent. Over the past year yielding superb Metal and Energy segment's turnover has decreased by 50 per cent. Agri commodities business has drastically declined.

Of course, profits and losses are determined by the market trend. But government policies is not responsible for it. Loss of CTT, NSEL ongoing scandal over the settlement of the late Ltifi and Gold policy from above. These are some really, quite a major impact on the commodity markets are left. So what are the expectations from the new government of commodity markets, commodity markets CNBC special offer of noise impact Modi has been trying to learn.

Ram Pitre, Senior VP, Anand Rathi Commodities says that not only in the domestic market to international market demand is reflected in the commodity business. NSEL such cases in the domestic market have also made their mark.

Says Ravi Singh, head of research at SMC Comtrade on commodity exchanges is to get impact on business taxation, the commodity has risen by 50 per cent of the car trading business. The lack of warehousing business also impacted on commodity markets. So the next government in making policy for the commodity market is facing many challenges.

All India Gems and Jewellery Trade Federation chairman Haresh Soni says the government to control the Current Account Deficit banned the import of gold, but the government's decision to show the worst. Government to ban the import of gold Smaling have seen massive growth. However, as a result of government decisions gold jewelry craftsman who are victims of unemployment. The new government now hopes to put the gems and jewelery industry is the industry that the government will take good decisions.

Jignesh Shah, aide Shreekant Javalgekar held in Rs 5,600-crore NSEL scam

 Jignesh Shah, founder of Financial Technologies (India) Ltd, was today arrested by the Economic Offences Wing (EOW) of Mumbai police for his alleged involvement in the Rs 5600-crore National Spot Exchange Limited (NSEL) scam.

Along with Shah, Shrikant Javalgekar, former CEO of Multi Commodity Exchange of India (MCX), was arrested. His arrest was because of his alleged links with the Indian Bullion Market Association (IBMA), which is a wholly owned subsidiary of NSEL.

Both have been arrested under the Maharashtra Protection of Interest of Depositors Act and they would be held in police custody.

The two high-profile arrests mark an important point in the NSEL payment crisis.

Troubles for the exchange began after it was asked in July last year to suspend spot trade in most of its contracts because of suspected trading violations. It could not settle the outstanding trades, sparking an investigation by the police and regulators. There were 24 members who defaulted payment to about 13,000 investors.

After the crisis came to light, the first high-profile arrest was that of Anjani Sinha, former managing director & CEO of NSEL, by the EOW in October last year. With Shah’s arrest, the total number of arrests in the scam has gone up to 11.

Rajvardhan Sinha, additional commissioner of police, EOW, told reporters here today that both Shah and Javalgekar did not give satisfactory answers during interrogations and that the arrests were necessary to take the investigation to its logical conclusion. “They were not co-operating with us during the investigation and they were evasive. We realised that their custody is important to help in better investigation of the case,’’ he added.

Sinha said the EoW team during investigations found both Shah and Javalgekar were involved in criminal conspiracy. He pointed out that the volume of trades at NSEL were linked with profits of FTIL and that higher trades at the exchange, meant more profits for the parent company. He added that the next course of action by the EOW would be to investigate the role of some of the brokers in the entire crisis.

Sinha said some of the brokerages indulged in malpractices. This included the use of client accounts for unauthorised trades.

The board of FTIL will meet tomorrow to discuss the arrest of its founder and chart a future course of action.

FTIL has been declared unfit by the Forward Markets Commission (FMC) to run an exchange and it has been ordered to pare its stake in MCX to 2 per cent from 26 per cent currently.

Shah’s arrest came on a day FTIL moved the Securities Appellate Tribunal (SAT), challenging a ruling by the Securities and Exchange Board of India (Sebi) which said it was not “fit and proper” to have a stake in any stock exchange.

FTIL will have to divest its entire stake to meet tighter commodity exchange ownership guidelines issued yesterday by the FMC.

On March 19, the market regulator had directed FTIL to divest existing holdings in MCX-SX and four other entities that included National Stock Exchange, Delhi Stock Exchange (DSE), Vadodara Stock Exchange (VSE) and MCX-SX Clearing Corporation (MCX-SX CCL).

Bengal hikes stamp duty on commodity contracts

The West Bengal Government has increased stamp duty on contract notes, a move that is likely to result in a fall in trading volumes at commodities exchanges.

According to recent notification , the State Government has imposed a stamp duty of 50 paise for every ₹5,000 in commodities traded.

Earlier, the stamp duty was 50 paise per contract, irrespective of the value of the contract.

The increase in stamp duty is likely to impact several commodity traders who are a part of these exchanges.

Low margin biz

Commodity traders generally operate on typically low margins, and depend mostly on high volumes to make money on trades.

A senior official at a commodity exchange, who did not wish to be identified, pointed out that an increase in stamp duty will logically lead to a decline in trade volumes as business will become unviable.

However, the trend is likely to be felt only over the coming months.

“Either these people will stop trading or they might move to some other state where the stamp duty is lower,” the official pointed out.

NSEL crisis

The increase in stamp duty is the latest in a series of incidents, including the introduction of the commodities transaction tax in 2013 and the payments crisis at the National Spot Exchange Ltd, that have resulted in a fall in trading volume at commodities exchanges .

Turnover plunges 70% in first fortnight of this fiscal; CTT, NSEL effects continue to haunt.

The commodities futures market continues to reel under the twin impact of the commodities transaction tax (CTT) and the National Spot Exchange Ltd (NSEL) imbroglio. These developments, which have affected liquidity and discouraged trading, have led to a sharp dip in turnover in the market.

In the first fortnight of this month, the turnover dropped by 70 per cent to ₹2.36-lakh crore from ₹7.87-lakh crore in the corresponding year-ago period.

“Interest in commodities trading has been on a downswing ever since the CTT was imposed in July last year. The immediate effect was the trade turnover falling 40 per cent,” said an analyst.

Sliding turnover

Trade turnover during July 1-15, 2013-14 dropped to ₹4.08-lakh crore from ₹7.87-lakh crore in the first fortnight of that fiscal.

During 2013-14, the trading in commodity futures plunged to ₹101-lakh crore from a record ₹170-lakh crore in 2012-13.

The numbers relate to the six national commodity exchanges (MCX, NCDEX, MNCE, ICE, ACE and USEL) and 10 regional exchanges.

The Centre imposed a 0.01 per cent CTT from July 1, 2013 on all non-agricultural commodities such as gold, silver and metals. The CTT for a trade worth ₹1 lakh is ₹10.

350% expensive

Traders feel that the CTT has made exchanges 350 per cent more expensive. “Imposition of CTT has increased the cost of hedging and trading. Because of the high cost on commodity exchanges, small and mid-size traders are shifting to illegal (dabba) trading,” said Sandeep Jain, Director of Tradeswift Commodities.

“The NSEL imbroglio in August further brought down the turnover by another 10 per cent. It has shrunk the money available in the commodities market. Besides, the imposition of additional margins by the Forward Markets Commission, which regulates commodity trading, on various products also affected trading,” said the analyst.

Naveen Mathur, Associate Director (Commodities and Currencies) at Angel Commodities Broking, said that apart from the CTT, the NSEL episode sapped investor confidence. “Besides, the past few months we have witnessed low volatility in some of the major commodities. This, along with equity markets touching new highs, has resulted in commodities trading taking a hit,” he said.

Shift to equity

There has been a shift towards the equity market as the Sensex rises with each passing day, said a trader. The Sensex had surged to record 22,939.31 last week before retreating to 22,631 on Monday.

Genuine physical market hedgers and international reference jobbers are also missing from the commodities exchanges. “Only small-time jobbers and traders are left, and this particular category of participants needs volatility to trade, which has been missing for quite some time,” he said. Commodities trading saw some improvement during January-March after the additional margins were removed.

Besides, the Forward Markets Commission permitted high-frequency trading in mini- and micro-contracts from January. “These improved trading before the interest waned in the first fortnight of April,” said the analyst. During January 16-31, trading on the commodities exchanges increased to ₹3.74-lakh crore from ₹2.77-lakh crore during December 16-31. In the first fortnight of March, the turnover was ₹3.43-lakh crore.

Poll effect

Elections and non-participation of industrial hedgers, too, are affecting commodity trading. Also, prices of key commodities such as gold, crude oil, and metals are ruling flat, leading to lack of interest among the trading community.

According to Vandana Bharti, Assistant Vice-President (Commodities) at SMC Global Securities, “If a stable government is elected, then we may see some increase in the prices of base metals and energy products. The bullion counter may see some decline as the haven appeal will decline. Further, if the newly-elected government goes for an import duty cut, then we may see a further decline in bullion prices.”