Spot spotting a spot

IIPM’s 36th Glorious Year of Academic Excellence

NSEL will create a win-win situation for both farmers and end-users

Amid inflationary pressures and a turbulent capital market, corporates engaged in agri-commodities and industrial commodities have something to cheer about. The canvass of commodity trading is all set to be complete as India will soon see its first ever spot market available on electronic platform with national reach. Not only corporates; farmers, traders, processors, importers et al are also destined to benefit from the nationwide electronic market venture for spot trading in agricultural commodities.

It is apparent that the World Development Report, 2008, which categorically mentions - for the poorest people, GDP growth originating in agriculture is about four times more effective in raising incomes of extremely poor people than GDP growth originating outside the sector - has been the inspiration behind the private public partnership to come up with National Spot Exchange Limited (NSEL). The high growth trajectory that India has witnessed over the last couple of years has not been of much help in bridging the rural-urban divide. The income disparity can be primarily attributed to market and state failures characterised by insufficient and unequal access to information (information asymmetry), imperfect competition, high transaction and supply chain costs et al. Now NSEL with a healthy cocktail of financial and market inclusion is all set to bridge the divide leading the accelerated growth process to reach to the bottom of the pyramid.

The nationwide electronic market venture for spot trading in agri-commodities will be operational in few months time. The best part of the spot exchange story is that now farmers and importers can sell their produce at the best possible price to the end users based anywhere across the country. “It is a revolution in itself as it will help in creating awareness and also in the development of a common and parallel market,” says Shankerlal Guru, Chairman, NSEL. Also this will maintain competitive market rates removing the middlemen who actually fiddle around with prices. As a complementary market to derivative traders, NSEL also has a lot to offer to the corporates, traders and farmers alike in terms of delivery based transaction (which is expected to be a lot lower than the existing 2-3% brokerage in the physical market), efficient warehousing and logistic support, trade guarantee etc. For traders, NSEL can provide a bigger and liquid market to sell huge quantities and get better realisation.

Future market operators might be thinking, will the spot exchange act as a shot in the arm for them? Anjani Sinha, MD & CEO, NSEL clarifies, “a healthy growth of futures market will be ensured through the development of a structured spot market.” He further adds, “NSEL is not a speculative platform,” thereby putting an end to all speculations around the speculations to take place in the spot exchange. However, the success NSEL is dependent on integration; both backward (farmers) and forward (buyers).

Gyanendra Kashyap

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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