Union Budget Reaction - Geofin Comtrade

Budget on commodities

The union budget for 2015-16 was tabled in the parliament by Honorable Finance Minister Mr. Arun Jaitley today. In the budget speech he proposed a slew of measures to fire up the economic growth of the country. The important one among them which influence the commodity industry is the proposal to merge FMC and SEBI.

FMC-SEBI merger

As anticipated, the Forward Market Commission, the regulator of the Indian commodities market will be merged with the capital market regulator, SEBI. The proposal was recommended earlier by BN Srikrishna, head of Financial Sector Legislative Reforms Commission. Consolidation of market regulation and supervision of SEBI was also recommended by Raghuram Rajan committee on financial sector reforms in 2009 itself. Presently the FMC is functioning under the finance ministry.

The finance minister said that 'the proposed merger would help streamline the monitoring of commodity futures trading and curb wild speculations'.

This proposal is likely to bring convergence in regulation of various financial markets like securities, commodities and currency derivatives. Easier tracking of cross linkage of money flow into such markets may also facilitate. This will lead to implementing of the long pending FCRA amendment bill. For brokers, substantial savings in costs are anticipated as separate setups for regulatory compliances may not be required.

Bullion

Instead of a reduction of import duty on bullion, the finance minister has proposed three schemes to reduce the import of the metal. The proposed changes are intended to use the gold as an investment avenue rather than an ornament. Gold monetisation scheme, loan for jewellers in their metal account and developing an Indian gold coin are the proposals mooted by the finance minister.

Earlier there was a wild expectation on the budget that the government may bring down the import duty of gold from the present 10 percent to 2 or 4 percent, which was anticipated to boost the domestic consumption of the yellow metal. The industry body had earlier submitted the recommendation to the Union Finance Ministry requesting to formulate a comprehensive gold policy to make India a global jewellery hub.

Expectations of abolition of the Commodities Transaction Tax introduced in the budget of 2013-14 which had a dampening impact on commodities futures market was not considered in the budget. Commodities futures trading volumes had been affected severely since its introduction and the market participants largely expected the tax to be abolished or reduced.

Proposal to increase the import duty of natural rubber from the present 20 percent to 30 percent to support domestic farmers were also not considered. Since the international rubber prices are dropping, imports to India has seen several fold increase, which are driving down domestic prices to multi year lows. Proposal to increase the import duty on pulses were also not take into consideration.

Source : Equity Bulls

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