Can the commodity exchanges and brokers expect any positive measures in the Union Budget that Finance Minister P Chidambaram presents on Wednesday?
While some fear that the government might ban some agri-commodities in the wake of rising inflation, others say no such ban will be announced and that the Budget will have good measures for the commodities market.
As part of the representation to the finance minister, the exchanges have pitched for exemptions in tax structure for infrastructure as well as research and development.
P H Ravikumar, managing director of National Commodities and Derivatives Exchange does not expect any negative measures from the Budget.
"I don't think that the government will de-list any commodity from trading on the futures. We think there won't be any measure that will affect the commodity exchanges in the Budget," Ravikumar said.
Last week, Union Food and Agriculture Minister Sharad Pawar had stated that futures trading had nothing to do with the higher rate of inflation. For the week ended February 10, the rate of inflation was 6.6 per cent.
Inflation has been above six per cent in the last few weeks mainly because of costlier primary articles, which mostly comprise agricultural commodities.
Though there has been immense pressure from Left parties to ban futures trading in essential commodities, not many expect that the ban would be enforced through an announcement in the Budget.
"I do not think futures trade in agricultural commodities will be banned. The Budget will have no announcement in this issue," a senior official at MCX pointed out.
Instead, he said, the commodity exchanges are expecting that there would be some positive announcements in the Budget for the sector.
Many expect that Chidambaram would effect changes in the Forward Contracts Regulation Act, 1952.
It was during the 1997-98 Budget that the then Finance Minister Yashwant Sinha announced that amendments would be carried out to the Forward Contracts Regulation Act, 1952 in order to facilitate futures trading, mainly in agricultural produce.
Now, the much-awaited amendment of the Forward Contracts Regulation Act imparting more powers to the market regulator FMC (Forward Markets Commission) is expected to figure in the Budget.
The amendment will also bring in future contracts on intangibles like carbon credits and index futures.
The government, which came to power riding on the wave of 'aam admi' is most likely to introduce sops for them especially the farmers by making options more attractive since it is a better mode of hedging price risks particularly when suicides due to crop failures are on the rise.
For traders, the government is likely to bring in equality with equity as far as setting off losses against profit is concerned. The current mode of treating gains from commodities as speculative income and disallowing setting off losses will see a change.
Kotak Commodities Services Ltd, in a pre-Budget expectation, said that brokerage charges could rise by 100 basis points to 13 per cent.
This is because Chidambaram has said that service tax should converge to a Goods and Service Tax at the Cenvat rate of 16 per cent.
"We expect the finance minister to announce measures for participation of banks and foreign investors in commodity exchanges," the Kotak report said.