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Wednesday, Mar 02, 2005

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Agri-Biz & Commodities - Agricultural Policy


Focus on strengthening agri marketing infrastructure

Jignesh Shah

THE National Agricultural Policy has focused on strengthening and liberalisation of agricultural marketing in India since the past few years. The Budget 2005-06 continues with this tradition. This year, the focus has been more clearly defined, with strengthening of agri-marketing infrastructure, grading of agri-commodities and connectivity to rural sector being the thrust areas.

The strengthening of these areas would ensure establishment of an efficient market mechanism. This would enhance the income of our farmers and usher in new players into the trade.

The Development/Strengthening of Agricultural Marketing Infrastructure, Grading and Standardisation Scheme can have a positive impact on the Indian agri-marketing scenario. The scheme aims to induce large investments from the private and cooperative sectors for setting up of agricultural markets, marketing infrastructure and support services such as grading, standardisation and quality certification. Grading, standardisation, quality certification, development of warehouses would have a positive impact on development of common national market for agri-commodities and increasing the quantum of trading and delivery in futures contracts.

The clause that the subsidy will be provided only in those States which amend their Agricultural Produce Marketing Committee (APMC) Acts, would act as a catalyst in quickening the process of liberalisation of Indian agri-marketing.

Improvement in rural connectivity is another major initiative proposed that would positively impact the development of India's agricultural spot and forward markets. The conviction of the Finance Minister to go-ahead with the introduction of VAT from April 2005 can also be applauded. The uniformity in taxes across States would definitely reduce confusion and be in the interest of traders now that national level futures trading is picking up in India.

The introduction of exchange-traded funds in gold is expected to bring in more liquidity to the gold trade. Trading in futures can act as a hedge against negative price movement and this would increase the number and type of traders in gold futures trading. This would also be starting point for different classes of institutional investors to step into commodity market.

The Budget also indicates that the banking system would be used for different products and markets. The thrust given for development of the necessary infrastructure at the rural level would aid in the creation of a strong foundation for the development of futures trading in commodities.

This strong foundation can be expected to result in a vibrant physical and futures commodities markets for India.

It could generally be said that the Government is trying to now depend more on institutional and market mechanism for the development of agriculture and I believe this focus on agriculture, both for production and marketing, is very good for Indian economy.

(The author is MD, Multi Commodity Exchange.)

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