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India to have cotton futures contract soon

Cotton Association of India (CAI), on Sunday said that it plans to launch cotton futures contracts, a top industry official said.

“We are working on cotton futures contract. Risk management is a great necessity to stay alive in any business, more particularly for efficient functioning of the cotton sector,” Cotton Association of India (CAI) President, P D Patodia, told PTI here.

“We are also designing a Cotton Price Index to be launched within a few months along with two new cotton contracts that are being given final touches before the approval of the FMC,” he said.

CAI proposes to launch two new cotton contracts- Gujarat Sankar-6 and Punjab J34–two varieties of cotton widely traded and exported. They will replace the two defunct cotton contracts on CAI.

The international hedging facility is restrictive and India's export trade cannot function without the ability to hedge its risks, especially when global players already enjoy such a facility, Patodia said.

“Our transactions in futures, which are essentially recognised exchange-traded derivatives, are also penalised under Section 43 (5) with Section 73 of the Income Tax Act 1961, as speculative. This interpretation is not in the
interest of development of the futures market,” Patodia said.

Good futures contract could be designed which is very much linked to the spot market of cotton, Forward Markets Commission (FMC) Member Rajeev Agarwal said.

“Today, we have kapas contract successfully running on the commexes,” he said.

Although, India is the second largest producer and exporter of cotton, it faces problems like quality certification, risk management and price-setting, he said.

“We do not have quality certification to the satisfaction of global buyers. We can take the help of the US, whose agri department is supporting the cotton industry by providing quality certification, free of cost,” Agarwal said.

Commenting on the extension of ban on futures trading on four commodities — rubber, soya oil, potato and gram —
Agarwal said, “We have extended the ban on futures trading considering the concerns of the Government about inflationary expectations, till November 30.”

The Government had suspended futures trading in the four items in May to check price rise and contain double-digit inflation.
Source: Economic Times

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