Chief Economist

Exploring MCX : Dr. V Shunmugam, Chief Economist, Multi Commodity Exchange of India Limited (MCX), Mumbai

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What is your role in the Multi Commodity Exchange?

Our exchange is into future trading in commodities. The range of commodities include those from verticals such as agriculture, metals, bullion, energy, horticulture, on a daily basis. I am involved into analyses of markets and the benefits to the stakeholders, besides conveying the same to the policy makers, the eco-system, and regulators.

What is the role of futures trading in ensuring food security and stabilising prices in India?

Futures trading worldwide has contributed to one phenomenon, which is undoubtedly, price stabilisation. In the process, futures exchanges provide signals to the farmers about what to produce, how much to produce, when to sell and when to store. This leads to the creation of transparent markets, helping the policy makers to take efficient decisions. Futures exchanges thus help in effective management of food supplies, which determine food security.

Has the government taken conducive policy measures in the area of futures market?

The introduction of National Multi Commodity Exchanges itself is a major initiative on the part of the government. However, necessary measures by the government and government agencies to build up a conducive ecosystem are missing.

Instruments like options, and indices, are not allowed in the commodity exchanges which would enable exchanges to offer more products on the platform. Institutions such as banks, mutual funds and FIIs are not allowed to participate in the commodity exchanges. This restricts the participation of real beneficiaries, either due to want of the suitable products on the platform or for want of required depth of the market.

What has been the role of ICTs in the futures market?

ICTs form the backbone of commodity exchanges. National level multi-commodity exchange is being run purely on ICTs. Previously, there were regional exchange platforms that were available for regional participants. Trading calls by buyers and sellers used to be costly due to high cost of communication. But with the current revolution in ICT and the fall in the cost of communication, commodity exchanges could enter into previously unknown and new areas which sometimes were not even reached by roads.

ICTs are helping in creating a national level online market, instead of a regional exchange based on the pit trading system. This would be more relevant as most commodities are produced regionally but consumed nationally. ICTs created continuity across the time period by helping people to transparently discover prices based on the information available with them about the fundamentals. In the process, everyone in the value chain gets empowered, due to transparency. The entire process in exchanges, using ICTs, can reflect value addition in the value chain.

If agriculture comes under the concurrent list, would it be helpful to futures trading?

The main blame on the futures market could not be effectively countered due to lack of transparent spot markets. Had there been a transparent spot market, futures prices could have been audited. Due to this lack, it had become our responsibility to collect and disseminate the spot market prices to the futures participants, to streamline their calls. It would have been effectively solved by real-time online national spot exchange trading on the same quality of the commodity.  Major hurdles have been faced by private entities including the one [National Spot Exchange Limited (NSEL)] being floated to establish national electronic spot market, as agricultural marketing remains a state subject and does not come under the concurrent list.

What is the future of agriculture in India?

With the current level of investment in agriculture, achieving 4 percent growth rate per annum in agriculture would remain an onerous task. For example, there are no alternative marketing platforms for farmers to sell their products to obtain a competitive produce for himself to invest more in improving what he is doing.  Public investment in technology development and dissemination are yet to deliver their results.  Private investment in technology development being market-led had remained confined to fewer commercially potential technologies and crops. Even the credit delivery systems would have to be improved to augment the farmer

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