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HindustanTimes Sat,30 Aug 2014
To control food inflation, agricultural commodities spared futures tax
HT Correspondent, Hindustan Times
New Delhi, March 01, 2013
First Published: 01:28 IST(1/3/2013)
Last Updated: 01:29 IST(1/3/2013)

Finance minister P Chidambaram spared agricultural commodities traded in the futures market of a new commodity transaction tax, which could have pushed food inflation levels higher.

The minister instead proposed a transaction tax of 0.01% on non-agri futures. The Commodity Transaction Tax (CTT), on the lines of Securities Transaction tax, would work out to be Rs. 10 for every transaction worth Rs. 1 lakh.

Among a slew of reform-oriented steps announced last year, the government had passed a bill to amend the Forward Contracts (Regulation) Act to strengthen the futures market.

Chidambaram said trading in commodity derivatives would not be considered as speculative transaction and hence, the CTT would be allowed as deduction if the income from such transaction forms part of the business income.

An updated law seeks to enhance the Forwards Markets Commission into an independent regulator, apart from widening India's rapidly growing futures markets.

A 'futures contract', the market for which is rapidly growing in India, is an agreement to buy or sell goods, such as food commodities or metals, on a future date but at an agreed price that is set at present.

For example, a wholesaler in January could set up a contract to buy 100 kg of potatoes from a farmer at Rs. 1,500 to be delivered when the harvest is ready in April. This enables better price discovery. Both the buyer and seller will get to transact the commodity at that price, regardless of whether the market price of potatoes later changes or not.

An efficient futures market therefore is said to curb price volatility or sudden changes in prices. A futures contract also acts as a hedge against adverse market conditions.

The amended bill also seeks to introduce 'options', which are insured contracts and gives protection against falling prices through a mechanism called 'put' and rising prices through a devise called 'call'.

However, speculators operating in futures markets are often blamed for inflation. Without strong regulation, speculators can swing prices one way or another. A speculator, for instance, could offer higher prices for oil futures, prompting oil producers to cut current supply so that they can sell it in the futures market. This will drive up both current and future prices.

The Abhijit Sen-led committee, set up by the government, however did not find any link between futures trading and food inflation. India had banned rice, urad and tur futures and suspended sugar futures in 2009, after a severe drought.

"There is no distinction between derivative trading in the securities markets and derivative trading in commodities markets. Only the underlying asset is different. It is time to introduce commodity transaction tax in a limited way," Chidambaram said.

The new tax has disappointed the futures market. Shreekant Javalgekar, CEO of the country's largest commodity bourse MCX, said, "CTT on selected items is not good. It will increase the hedging cost by 310%."


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Highlights: Budget 2013  »

  • Expect higher revenue next year: Chidambaram
  • Unclear what the expense on food subsidies be at this stage: Chidambaram
  • Fuel subsidy likely to be lower this year: Chidambaram
  • Immediate goal is to achieve growth rate of 6%: Chidambaram
  • We have to be patient and wait for the economy to pick up: Chidambaram
  • We have not put impossible burdens on people: Chidambaram
  • The only way to contain current account deficit is to increase exports: Chidambaram
  • Confident that RBI will do it's part: Chidambaram
  • Economy is challenged in a number of ways: Chidambaram
  • This is a lollypop election budget: CPI leader Gurudas Dasgupta
  • Budget has ignored SC/ST: Mayawati
  • Budget will only benefit industrialists, not common man: Mayawati
  • Budget will give impetus to Bihar's demand for special status: Nitish Kumar
  • FM has taken important steps to reverse pessimistic mood with regard to our economy: PM
  • There is need to convert challenges into opportunities: PM
  • The Finance Minister has done a commendable job: PM
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  • No change in customs and excise duty
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  • Education cess at 3%
  • donations to be tax free
  • Surcharge of 10% on individuals, companies whose income is above Rs. 1 crore per year
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  • Rs. 1,000 crore allocated to women safety fund
  • Defence budget allocation increased to Rs. 2 lakh crore
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  • Domestic workers, Anganwadi workers, others to get group insurance
  • 13 public sector banks to get Rs. 14,000 crore
  • Propose to provide Rs. 14,000 cr for capital infusion in public sector banks
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  • JNNURM is being continued in the 12th Plan; Rs. 14,873 cr to be provided to the Mission
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  • Rs. 6000 crore for rural housing fund, Rs. 2000 cr for urban housing fund
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  • All towns having population of 10,000 to get LIC office
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  • Person taking home loan for the first time to get tax cut of Rs. 1 lakh
  • Regulatory authority to be set up for road sector
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  • Rs. 25,000 cr to be raised through tax free bonds: Chidambaram
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  • Rs. 41,000 allocated for scheduled caste welfare: Chidambaram
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  • Rs. 110 cr to be allocated to department of disability: Chidambaram
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  • Rs. 65,000 cr allocation for education schemes: Chidambaram
  • Rs. 110 cr to be allocated to department of disability: Chidambaram
  • Need $ 75 billion to bridge current account deficit: Chidambaram
  • 2013-14 budget has sub-plans for SC, ST, youth and women: Chidambaram
  • Foreign investment imperative for growth: Chidambaram
  • Our economy has slowed down after 2010: Chidambaram
  • No choice but to cut spendings to control inflation: Chidambaram
  • China and Indonesia are growing faster than India: Chidambaram
  • Getting back to 8% growth is a challenge for country: Chidambaram
  • Our goal is higher growth: Chidambaram
  • Between 2004-2008 and again in 2009-10, 2010-11 the growth rate was over 8%: Chidambaram
  • P Chidambaram begins budget address in Lok Sabha
  • Cabinet endorses Union Budget 2013-14, to be presented in Parliament shortly.
  • Finance minister P Chidambaram reaches North Block.
  • Chidambaram set to present India's 82nd national budget.
  • Today's Union Budget will be Chidambaram's eighth personal exercise.
  • It's two short of the record of 10 set by former PM Morarji Desai.
  • Since Independence, the country has seen a total of 25 ministers hold the finance portfolio.
  • India has also seen budgets - 65 normal annual budgets, 12 interim budgets and four mini-budgets.
  • Morarji Desai presented eight normal and two interim budgets.
  • Thursday will see Chidambaram equal the eight-budget track record of Pranab Mukherjee.
  • Chidambaram will surpass Yashwant Sinha, YB Chavan and CD Deshmukh who all presented seven budgets each.
  • PM Manmohan Singh and TT Krishnamachari have presented six budgets each.
  • Jawaharlal Nehru, Indira Gandhi, Rajiv Gandhi have presented one budget each.
  • Sensex closed up more than half a percent a day before the union budget 2013-14
  • It will be the eighth such personal exercise for him
  • Chidambaram set to present India's 82nd national budget in Lok Sabha

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