Commodity market to reach $1.73 trillion by 2010: Assocham

The Indian commodity market is expected to grow by 30 percent and will reach Rs.74,156 billion ($1.73 trillion) in volume by 2010, according to a study by the Associated Chambers of Commerce and Industry of India (Assocham). Assocham found that the Indian commodity market expanded 50 times in a span of five years from Rs.665.3 billion in 2002 to Rs.33,753 billion in 2007 as people's participation in such trade continued to grow. "The growth in commodities derivatives trading would now grow by about 30 percent to reach a projected level of Rs.74,156 billion in the next two years," said Assocham president Sajjan Jindal.

The turnover in proportion to GDP of commodity trade increased from 4.7 percent in 2004 to 20 percent in 2007 and is expected to go up many-fold since commodity markets would remain friendly to subscribers. "The daily average volume of trade in commodities exchanges by December 2007 was over Rs.120 billion," said Jindal.

"Gold, silver and crude recorded the highest turnover in Multi Commodity Exchange (MCX) while in National Commodity & Derivatives Exchange Ltd (NCDEX), soya oil, guar seed and soyabean and in NMCE pepper, rubber and raw jute were the most actively traded commodities on an average. This trend is likely to continue," he added. The study points out that futures trading in commodities results in transparent and fair price discovery on account of large-scale participation of entities associated with different value chains.

It also noted that Indian commodity exchanges are still at a nascent stage of development as there are numerous bottlenecks hampering their growth. "Some of the major problems associated with commodity markets in India include infrastructure, trading system, broking community, controlled market, integration of regional and national exchanges and integration of spot and futures markets," the study said.

To attract active traders to commodity futures, the regulatory authority needs to introduce a more stringent code of conduct in setting standards for brokers, imposing capital adequacy norms and defining qualification criteria, it noted.

For a vibrant futures market, it is imperative that commodity pricing be left to market forces, without monopolistic government control. However, in India, scores of commodities in which futures trading is permitted are still protected under the Essential Commodity Act, 1955. The integration of the spot and futures market is another critical factor for the expansion of the commodity futures market in India. The state governments largely control the spot market in commodities, the study said. The institutional and policy-level issues associated with commodity exchanges have to be addressed by the government in coordination with the Forward Markets Commission in order to take necessary measures to pave the way for a significant expansion and further development of the commodity futures markets, Assocham stressed.

Sources: ASSOCHAM, Silicon India and PTI