The Hindu : Business : ‘Scrap rubber licensing’

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Friday, Sep 21, 2007
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Business

‘Scrap rubber licensing’

K. Venkiteswaran

Level the playing field, say merchants

Kochi: The annual general meeting of the Cochin Rubber Merchants’ Association (CRMA) here on Saturday has demanded that the government allow free trade and movement of rubber without any control or restrictions imposed by the Rubber Board and also dispense with the Rubber Board registration and licence to enable spot traders to have a level playing field vis-À-vis futures traders in rubber.

N. Radhakrishnan, President of the Cochin Rubber Merchants’ Association, pointed out that the Rubber Board Chairman had agreed to take up with the Forward Markets Commission (FMC) the issue of compulsory Rubber Board registration to be made applicable to all rubber futures traders. In order to contain the volatility in prices, it was also proposed to curtail the daily ceiling on futures price variation to a maximum of 2 per cent. It was also proposed to approach the FMC for directing the Exchanges to publish all details of the daily futures trade conducted by them, including individual positions, to bring transparency to the deals.

Not favourable

According to the CRMA, the Central Ministries concerned and the Forward Markets Commission are not inclined to favourably consider the suggestions put forward by the Rubber Board. FMC Chairman’s reported statement that, in the absence of adequate hedgers, speculators shall be allowed to play their role unhindered in the commodity exchanges, is against business ethics.

Unlike other commodities, production, consumption, processing, trading, and interstate movement of rubber is regulated by the Rubber Board, which is constituted under the Rubber Act enacted by the Parliament. While spot traders require Rubber Board registration and licence as per the Rubber Act and have to abide by the rules framed there under, futures traders can operate freely without Rubber Board or Sale Tax registration until they effect physical delivery. For all practical purposes it is not possible to pre-determine physical delivery against any particular deal made on the floor of Exchanges. Rubber being an industrial raw material, the industries need the goods for consumption and hence the growers and traders have to effect physical delivery.

The speculators, whose sole purpose is to earn money by speculating and creating volatility in the market, can escape at present from the rules and procedures laid down by Rubber Board and other related economic and revenue departments of the Central and State governments. Since physical delivery cannot be made against futures contract in the absence of Rubber Board licence and since it is not possible to pre-determine and distinguish physical delivery against any particular futures contract, it is imperative that all traders who participate in the trading floor of the Exchanges shall have valid Rubber Board registration and licence and also have Sales Tax registration either under State Act or Central Act or both. The fact being so, the FMC’s reluctance to insist on Rubber Board registration to all futures traders will only help promote unruly speculative activities against the interest of the stakeholders in the rubber sector, Mr. Radhakrishnan said.

Unlike in other countries, futures trade and physical trade are not complementary to each other in India. Unfortunately, the rubber market in India is vastly influenced by the futures transactions held at the highly speculative Tokyo Commodity Exchange (TOCOM) and the speculators in India manipulate the daily prices taking cue from TOCOM prices.

The speculators in futures trade do not come under the control of Rubber Board whereas the genuine physical trader is bound by the Rubber Act and the concerned rules. This anomaly has to be corrected, the annual general meeting opined.

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