December 13, 2003
New Delhi

PM's speech at the inauguration of Futures Trading of the National Multi-Commodity Exchange

~I am very pleased to be with all of you today for the inauguration of an institution that is truly futuristic. I believe that the futures trading of the National Multi-Commodity Exchange in Ahmedabad will make an important contribution to the future development of the Indian economy, especially India’s agricultural economy. 

The launch of futures trading in wheat and rice is not an ordinary event. With the small step we are taking today by inaugurating this exchange, we start a new journey that will bring rewards to all the stakeholders in the commodity markets to the producer as well as the consumer, to the trader as much as to the national exchequer. 

What is especially heartening for me about this initiative is its promise of de-risking Indian agriculture in terms of irrational and erratic price fluctuation. Traditionally the Indian farmer has faced three kinds of risk: the sultani risk, the asmaani risk and the risk of the market. The sultani risk is long over.

The risk of depending on the monsoon still exists although it has lessened to some extent because of the expansion of irrigation facilities in many parts of the country.  

But what worries the farmer often is the uncertainty of what price hell get for his produce. Introduction of futures and derivatives contracts in various commodities is an effective instrument to manage the uncertainty in a free market regime and mitigate risks.

Now that Indian agriculture has opened up to world markets, this instrument has become all the more necessary.

In my Independence Day address last year, I had announced that our Government would soon set up an online commodity exchange in the country.

My compliments to the Ministry of Consumer Affairs, Food and Public Distribution, and the Central Warehousing Corporation, for implementing this promise.  

Friends, commodity markets are not new to India. Over the centuries our traders had developed great expertise in this field. However, after Independence we did not pay adequate attention to the needs of our commodity markets for achieving vibrant growth. We did not enable them to respond to the challenges and opportunities in commodity trade worldwide. 

The result is the strange paradox that we see today. We are one of the largest producers as well as consumers of certain commodities. We also export and import significant quantities of these commodities. However, the price and trading of these commodities are largely influenced by exchanges in developed countries. 

The other paradox is this. Some of the smartest traders in the commodity markets abroad are Indians. 

But this will change, just as many things in India are now changing for the better.  We want to make India a major trading nation in the world for both farm and non-farm commodities. I am told that, by building a commodity trading exchange of global standards, India has an opportunity to chase a US $ 600 billion market opportunity.  

For achieving this goal, we have to equip ourselves with the appropriate market instruments and institutions. We have to use the tools of information technology at all levels from the village mandi to the urban markets. We have to remove restrictions and controls on the internal movement of commodities.  

We have to bring in legislative changes to enable innovations such as warehouse receipt-based settlement mechanisms. Above all, we have to improve the physical infrastructure and logistics -- from rural roads, to highways, to railways, to port development. 

As you are aware, we have launched major initiatives to attend to many of these critical needs. We shall do much more in the time to come. 

On this occasion, I would urge all concerned to keep in mind one guiding principle. You should ensure that this system actually benefits the farmers, and not just traders. For this Central and State Government agencies have to take necessary steps, including rapid expansion of rural warehousing facilities.  

I would like the regulatory system for commodity exchanges to be strengthened so as to create confidence among all the stakeholders. At the same time, all the recognized and partly recognized exchanges should also put in place their own self-regulatory mechanisms.  

Ladies and Gentlemen, with this revolutionary initiative on futures trading in Wheat and Rice, following Gold and Silver a couple of months ago, we can say with confidence that Indian agriculture is equipped with yet another modern tool to face global competition. 

I congratulate all the public and private sector partners in this initiative and wish it every success.~