The budget has been a disappointment for commodities markets. With the imposition of CTT, the Government has broken the back of the market which is struggling to stand on its own feet amidst inept regulation and lack of wider participation and competition from the illegal markets. Commodities market in India is still in a nascent stage, in comparison with equity markets that have wider participation from all sections of investors and institutions , diversified instruments. Commodity Derivatives are primarily used as “hedging instruments” therefore; any additional levy on transaction will have negative impact on “hedging efficiency” and distort price discovery mechanism. Imposition of CTT not only negates the advantage of low cost hedging platform but also takes away revenue stream from State Governments. Whenever, commodities are traded/hedged on an exchange, they come under tax net as VAT is paid on such transactions. CTT will raise cost of such transactions, thereby leading to migration of volumes to unregulated and illegal ‘Dabba’ markets and cause revenue loss to the exchequer and create other problems as these trades will not be monitored or regulated. The only positive outcome out of this budget, for the commodity markets is that the classification of the transactions on commodity markets would not be considered as “Speculative Transaction”, by which it would facilitate to offset the profits or losses arising out of hedging against the business income.

Kishore Narne, Associate Director Head - Commodity & Currency -Motilal Oswal Commodity Broker

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