By – Mr. Jayant Manglik, President of Retail Distribution at Religare Securities Limited
FDI in commodity exchanges was allowed a few years ago. Now India is set to permit 100% FDI in commodity broking under the automatic route. This highlights the growth potential and the resultant importance being given to this sector. It will ensure that the latest technology and global management best practices are fast-forwarded into the industry. Commodities being international by their very nature, such a step will help in faster integration with global markets. I think it is also another step towards becoming a South Asian financial hub. Club this step with the opening of cross-currency futures & options trading, the Gift City benefits etc and you have a clearer picture.
The announcement will set the intent but actualisation is a necessary step. A good regulatory environment is necessary to attract foreign capital. Issues like counter-party risk will have to be dealt with, given events in the last few years. Announcements made in the budget to introduce new products in the commodities markets will have to be expedited and new participants like banks, MFs and FIIs should be added to the market. Only if all stakeholders participate will there be fair price discovery which will allow for efficient risk mitigation. For a 12-year-old industry, there has been a lot of progress. The new regulator Sebi has a 20-year track record of growing the equities markets. One of the key reasons why FIIs invest in Indian equity is strong and predictable regulation
This will likely be repeated for commodities in doublequick time. The overall economic environment is positive for these changes. This step, combined with the introduction of new products and participants, will help make India a price-setter in the commodities which are important to us. It will also mean new job creation and make us a more integral part of the global financial sector.
Source The Economic Times