After deferring a decision on the Forward Contract Regulation Act (Amendment) Bill — a key reform measure — on two consecutive occasions, the cabinet committee on economic affairs (CCEA) has finally scheduled the proposal for its Friday meeting.
The bill, which aims to provide additional powers to the Forward Market Commission (a commodity markets regulator), faces stiff resistance from a key UPA ally— Mamata Banerjee-led Trinamool Congress. The second-largest partner of the ruling dispensation blames forward trading as a key reason for food inflation.
The CCEA had deferred taking a decision in the last two meetings after Trinamool nominee, railway minister Mukul Roy, wrote to Prime M inister Manmohan Singh on both occasions.
With the bill back on the CCEA agenda, a week before the monsoon session of Parliament is supposed to start, a section of the UPA sees it as part of the government’s determined efforts to push for key reforms. Some coalition managers, however, did not rule out the possibility of yet another deferment – in view of the vice-presidential poll next week.
The bill aims to enhance the penalty, in order to discourage any violation of the Act. It would also strengthen the FMC by providing financial autonomy, facilitating the entry of institutional investors, and introducing new products for trading such as options and indices.
The amendments may also allow financial institutions such as banks, mutual fund firms and insurance companies to participate in the forward market, so as to ensure better price discovery and lower volatility. Their annual turnover of the forward market stood at R181.26 lakh crore during 2011-12.