Although commodity markets have come a long way in terms of volumes on the national level commodity bourses, further reforms are necessary to maintain the long-term sustainability. With respect to agriculture, the 2011-12 union budget mainly focused on the four aspects i.e. agricultural production, reduction in wastage of produce, credit support to farmers and a thrust to the food-processing sector. Although inflation has come under control, we expect the 2012-13 budget to focus on agriculture by retaining and even increasing the target of credit flow to the sector by banks and financial institutions so as to keep inflation under check. Some of the reforms expected from the Mr. Finance Minister in the coming budget from the commodity market perspective are as follows:
1. Abolishment of excise duty on gold
Much ahead of the budget, the government had already increased import duty on gold and silver. The switch over to the new duty regime will be a major deterrent to growth in retail demand. Due to this the jewelry sector is expecting the abolishment of excise duty which could hamper demand for gold, as gold is not only an urban investment choice but is also the only option for rural investors for savings and investment.
2. More investment in warehousing and infrastructure
Normal monsoon in 2011 and the resultant bumper output of most of the crops have raised the concern of proper warehousing infrastructure facilities to store the produce. More investment in this sector is necessary so that farmers could store the same to hedge on the futures platform.
3. Uniformity in Stamp duty across states
Stamp Duty is applicable on the Value of the Contract note and is calculated on the percentage specified by the stamp duty authority of the relevant state. It is to be paid state wise as all state government has specified certain value of stamp duty to be paid for futures contracts. Thus uniformity in stamp duty across state is necessary to bring in flexibility.
4. Imposition of CTT
The government has been proposing imposition of CTT since 2008, however, the same has not been introduced since then due to stiff opposition from the various industry participants as the same will hamper the growth in the commodity markets and may encourage illegal trading. In the current budget as well the industry participants have strongly opposed imposition of CTT.
5. Amendment of APMC act across state on line of model act
The model APMC Act was finalized in 2003 and the same was circulated to the state governments for implementation in 2007. Since then, a few states have amended the Act. The amendment to the Act is necessary to establish a barrier free national market to the farming community.
6. To boost oil palm production and reduce import dependency
In the last budget, government allocated Rs.300 crore to bring 60,000 hectares under oil palm plantations and has taken initiative to yield about 3 lakh Metric tonnes of palm oil annually in five years. Further, allocation of funds in this sector is needed to aid production of Palm oil as palm oil account more than 80% of total Indian edible oil imports.
7. Hike in import duty on refined Edible Oil
Indonesia has recently announced a sharp reduction in export duty on refined palmolein. Thus, to protect the domestic refiners, it is necessary to hike the import duty to stop possible flood of refined edible oils. Currently, the import duty on refined palm oil is 7.5%, which we expect the government to increase to 15-20% and to keep check on imports of refined palm oil. While that of crude palm oil to remain at zero percent.