Policy Initiatives

Policy Initiatives

Let’s learn more about Policy Initiatives. In 1952 the Parliament passed Forward Contracts (Regulation) Act that regulated forward contracts in commodities all over India. The Act applies to any movable property (goods) other than security, currency and actionable claims. It prohibited goods to be traded in Options.

The Act envisages (imagine) three-tier regulation:

• The Exchange which organizes forward trading in commodities can regulate trading on a day-to-day basis.
• The Forward Markets Commission provides regulatory oversight under the powers delegated to it by the central Government
• The Central Government – Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution – is the ultimate regulatory authority.

Through 1970-80, the Government relaxed forward trading rules for some commodities.

In 1993, after the economic reforms in 1991, Prof. K.N Kabra was appointed the chairman of the Forward Markets by the government of India. The Kabra committee was set up with the following objectives.

• To assess the working of the commodity exchanges and their trading practices in India
• To make suitable recommendations with a view to making them compatible with those of other countries
• To review the role that forward trading has played in the Indian commodity markets during the last 10 years.
• To examine the extent to which forward trading has special role to play in promoting exports.
• To suggest measures to ensure that forward trading in the commodities in which it is allowed to be operative remains constructive and helps in maintaining prices within reasonable limits.

The report for this committee “The Kabra Committee Report” was submitted in September 1994 with the following recommendations.

• The Forward Markets Commission (FMC) and the Forward Contracts (Regulation) Act, 1952, would need to be strengthened.
• Ensuring capital adequacy norms and encouraging computerisation would eliminate the difficulties faced with the current inadequate infrastructural facilities such as space and telecommunication facilities. The commodities exchanges would function efficiently.
• In-built devices in commodity exchanges such as the vigilance committee and the panels of surveyors and arbitrators are strengthened further.
• The Indian regulatory body for forwards and futures – FMC should continue to monitor the activities and operations of the commodity exchanges. The FMC should be the only authority to approve amendments to the rules and regulations and bye-laws of the commodity exchanges.

Forward Contracts (Regulation) Act 1952, permits option trading in goods and registration of brokers with Forward Markets Commission. Trading was permitted in all commodities recommended by the commission. As the utility of the global commodity market increased in the decades to follow, the Act was placed quite time to serve and advantage to India as well.

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