2.3.

1 The Kabra committee report After the introduction of economic reforms since June 1991 and the consequent gradual trade and industry liberalisation in both the domestic and external sectors, the Government of India in June 1993 appointed a committee on Forward Markets under chairmanship of Prof. K.N.Kabra. The committee was setup with the following objectives: 1. To assess (a) The working of the commodity exchanges and their trading practices in India and to make suitable recommendations with a view to making them compatible with those of other countries (b) The role of the Forward Markets Commission and to make suitable recommendations with a view to making it compatible with similar regulatory agencies in other countries so as to see how effectively these agencies can cope up with the reality of the fast changing economic scenario.

2. To review the role that forward trading has played in the Indian commodity markets during the last 10years. 3. To examine the extent to which forward trading has special role to play in promoting exports. 4. To suggest amendments to the Forward Contracts (Regulation) Act, in the light of there commendations, particularly with a view to effective enforcement of the Act to check illegal forward trading when such trading is prohibited under the Act. 5. To suggest measures to ensure that forward trading in the commodities in which it is allowed to be operative remains constructive and helps in maintaining prices within reasonable limits. 6. To assess the role that forward trading can play in marketing/ distribution system in the commodities in which forward trading is possible, particularly in commodities in which resumption of forward trading is generally demanded.

The committee submitted its report in September 1994. The recommendations of the committee were as follows The Forward Markets Commission(FMC) and the Forward Contracts (Regulation) Act, 1952, would need to be strengthened. Due to the inadequate infrastructural facilities such as space and telecommunication facilities the commodities exchanges were not able to function effectively. Enlisting more members, ensuring capital adequacy norms and encouraging computerisation would enable these exchanges to place themselves on a better footing. In-built devices in commodity exchanges such as the vigilance committee and the panels of survey or sand arbitrators be strengthened further. The FMC which regulates forward/ futures trading in the country, should continue to act a watch-dog and continue to monitor the activities and operations of the commodity exchanges. Amendments to the rules, regulations and bye-laws of the commodity exchanges should require the approval of the FMC only. In the context of globalisation, commodity markets in India could not function effectively in an isolated manner. Therefore, some of the commodity exchanges, particularly the ones dealing in pepper and castor seed, be upgraded to the level of international futures markets. The majority of me committee recommended that futures trading be introduced in the followingcommodities: 1. Basmatirice Cotton and kapas3. Raw jute and jute goods4. Groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower seed, safflower seed,copra and soybean, and oils and oilcakes of all of them.5.

Rice bran oil6.

Castor oil and its oilcake7.

Linseed8.

Silver 9.

Onions The liberalised policy being followed by the government of India and the gradual withdrawal of the procurement and distribution channel necessitated setting in place a market mechanism to perform the economic functions of price discovery and risk management. The national agriculture policy announced in July 2000 and the announcements in the budget speech for 2002-2003 were indicative of the governments resolve to put in place a mechanism of futures trade/market. As a follow up, the government issued notifications on 1.4.2003 permitting futures trading in the commodities, with the issue of these notifications futures trading is not prohibited in any commodity. Options trading in commodity is, however presently prohibited