Another strategy is to launch an awareness drive for retail investors. We are using IT, mobile, Internet technologies and social media to promote awareness and connect with them more effectively.
Aggregation of retail investors through fund structures is a global best practice that is needed in India. Worldwide, retail investors participate mostly indirectly through financial institutions. They participate through vehicles called CTA (commodities trading advisors). This is a unique practice followed worldwide and we need to import it to India. But we need a regulation to make that change.
CIO: What are your plans for expanding the agricultural futures market to benefit the farmer fraternity?
Samir Shah: We are trying to create more transparent electronic modern markets at the APMC (Agricultural Produce Market Committee) level. The experiments that we are doing in Karnataka form part of that strategy. We want to replicate that in the other states in the country. Modernizing the APMCs and then connecting them to the futures market is the first part of the strategy.
The second is to launch more customized products for them. For instance, we launched a service called Exchange of Physicals for Futures (EPFs) that is a better suited product for farmers and physical participants.
The third part is to create more membership categories to allow farmers and Farmer Producer Organizations (FPOs) to participate more easily in the Exchange. We need to bring a change in the membership structure.
CIO: What reforms are needed in the commodity market to boost investor confidence?
Samir Shah: We should start by allowing foreign entities to participate in Indian commodity Exchanges. China and India are driving consumption in the global economy. Likewise, commodity markets will shift their gravity from west to east. India is the largest producer of many commodities so ideally we should be the price setter and not the price taker. However, in the current scenario, we are the price takers because our liquidity is low and we do not allow foreign participants in our market. Foreign participants can make our market more liquid.
The third reform we require is that the micro structure of agricultural commodities should be brought to a level-playing field with non-agricultural commodities. More liberalization needs to happen in agricultural contracts. Till now, they have been treated with a lot more control. Bringing the two on a level-playing field will help us deal with inflation and food security more effectively.
Also, we should allow banks, financial institutions and mutual funds to participate in the markets. Banks have an extensive exposure to the commodities market due to programs like priority sector lending and farmer loans. Participation of banks will bring in more professional expertise and research. This will make the market more liquid. We also need to reform the primary APMC markets.
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