Trading in commodities to churn more revenues

NEW DELHI: Trading in commodities might have been slow in benefiting farmers but it could soon generate more revenue for the government than the equities market.

With FM P Chidambaram proposing commodities transaction tax (CTT) on the lines of the security transactions tax (STT), sources said the government could end 2008-09 with a mop-up of at least Rs 10,000 crore. The budgeting is based on present volumes in the commodity futures market where the turnover is rising faster than equities.

In contrast, the government has budgeted to mop up around Rs 8,500 crore this year from the securities transaction tax. So far this year, the Centre has received Rs 7,000 crore by way of STT.

Last week, the Economic Survey said between January 2006 and December 2007, the volatility of weekly returns of Indian indices was higher than S&P 500 or South Korea's Kospi.

While the increase in short-term capital gains tax could generate additional funds for the government, a stable market might mean that equities would receive tough competition from commodities when it comes to raising resources for the government.

In 2007, the trade volume in the commodity futures market rose 5% to Rs 35.54 lakh crore despite suspension of trading in wheat, rice, urad and tur. The daily average value of trade in commodity exchanges improved from Rs 13,000 crore in 2006 to Rs 15,000 crore in 2007.

The spot market turnover for NSE and BSE amounted to Rs 45 lakh crore in 2007, while in the derivatives market, the turnover of the two exchanges added up to Rs 121.6 lakh crore.

Commodities trade regulator B C Khatua has predicted that trading volumes could touch nearly Rs 50 lakh crore this financial year. Even if the target is not met, the steep rise in global prices, introduction of trading in new commodities and options are expected to significantly push up turnover in the coming years