On March 11, West Bengal increased the stamp duty on trade notices for commodity trading and linked the duty to trade volume.
A stamp duty of ₹ 0.50 will be imposed for each ₹ 5,000 in commodities traded, the state government said in a notification. This translates into a duty to ₹ 10 for each ₹ 1 lakh traded which puts it on par with states such as Delhi, Gujarat and Maharashtra. Stamp duty in West Bengal predated ₹ 0.50 per contract, regardless of the value of the contract or the commodity.
The unusually low stamp duty in the state had spawned dozens of commodity traders who survived on razor-thin margins and high volume. So much so that Kolkata alone accounted for around 30% of all trading on the country’s commodity exchanges, according to an official at a leading commodity exchange, who declined to be named.
The stamp duty increase is the latest in a series of events that have led to a sharp decline in trading volume on commodity exchanges, including the introduction of the Commodity Transaction Tax (CTT ) in 2013 and the payments crisis at the National Spot Exchange Ltd. (NSEL).
“State governments need to understand that they are getting good revenue from the business activities of these resellers. Since these dealers are playing with very small spreads, the introduction of CTT has already hurt them very badly,” said CP Krishnan, full-time director at Geojit Comtrade Ltd. It will be very difficult for them to survive. »
According to Vijay Kumartrading director of NCDEX, the second largest commodity exchange in the country.
These fees are likely to burden trading firms that deal with short-term traders and arbitrageurs, he said. These traders focus on intra-day gains by spotting price gaps and usually settle for a low margin, sometimes as low as ₹ 0.20, he says.
“There are different types of market participants operating in different states. The impact of fees and transaction costs, although a small part of the contract value, will ultimately depend on what type of participant you are,” Kumar said.
So far, volume on NCDEX has not been affected by the prospect of a stamp duty increase, but volumes on MCX fell in March and April.
MCX recorded an average trading volume of ₹ 18,615 crores and ₹ 17,911 crores in March and April, respectively, compared to ₹ 20,096 crores in February and ₹ 19,214 crores in January.
MCX declined to comment on the matter.
Although there are no official figures, analysts estimate that these short-term transactions represent more than half of the total volumes of commodities traded.
Speculators contribute nearly 50-60% of the volume on commodity exchanges, according to Hitesh Jain, a research analyst who studies commodities, metals and currencies at broker India Infoline Finance Ltd.
Jobbers (short-term traders) are important for commodity markets because they create liquidity in contracts, said Krishnan of Geojit Comtrade.
Trading volumes in commodity markets have already declined since July 1, when the CTT was implemented. Minister of Finances P.Chidambaram, in its February 2013 budget, introduced the CTT at the rate of 0.01% to be paid by sellers. The CTT was levied on non-agricultural products, including gold, sugar and edible oils.
In addition to the tax hike, the payments crisis at NSEL, which erupted in late July last year, also eroded volumes on MCX, both promoted by Financial Technologies (India) Ltd (FTIL). FTIL owns 26% of MCX and 99.99% of NSEL.
Average monthly turnover on MCX, which was ₹ 48,179 crores in June last year, fell to a low of ₹ 14,808 crores in November.
“Volumes are already down at MCX, down about 60% from where they were 8-10 months ago,” said Sumeet Bagadia, assistant vice president for commodities and currencies. at CD Commo Search, a commodity trading company.
Until the issue of selling MCX’s stake is resolved, it would be difficult for MCX to increase its commodities business, he said.
MCX’s board of directors on February 7 asked FTIL to reduce its current 26% stake in the commodities exchange to 2%, as ordered by commodity market regulator Forward Markets Commission (FMC). .
On Dec. 17, FMC said FTIL was unsuitable for an exchange after an investigation into NSEL’s operations following a ₹ Payment crisis of 5,574.34 on the commodity spot exchange.
Never miss a story! Stay connected and informed with Mint. Download our app now!!