The Forward Contract Regulation Act (FCRA) is a law that regulates the forward markets of commodities in India. It was enacted in 1952 to control the trading of agricultural commodities and to protect farmers from price fluctuations.
The FCRA provides a legal framework for regulating the forward contracts market, and it empowers the Forward Markets Commission (FMC) to oversee the implementation of the law. The FMC is responsible for monitoring the functioning of the forward contracts market and for ensuring that the market operates in a fair and transparent manner.
Under the FCRA, all forward contracts must be traded through recognized associations or exchanges, which are required to be registered with the FMC. The FMC also regulates the margin requirements for these contracts, and it has the power to suspend or cancel the registration of any exchange or association that violates the provisions of the FCRA.
The FCRA has been amended several times over the years, as the Indian government has sought to modernize and streamline the forward contracts market. In 2013, the government passed the Forward Contracts (Regulation) Amendment Bill, which introduced several new provisions designed to promote transparency and accountability in the market.
One of the key changes introduced by the 2013 amendments was the requirement for all commodity futures contracts to be settled through physical delivery. This means that traders can no longer settle their contracts solely through cash payments, which has helped to reduce the risk of price manipulation and other fraudulent activities.
Another important change introduced by the 2013 amendments was the establishment of a new regulatory body called the Securities and Exchange Board of India (SEBI). The SEBI is responsible for overseeing the regulation of the securities market in India, including the regulation of commodity derivatives markets.
Overall, the FCRA has played an important role in regulating the forward contracts market in India, and it has helped to promote transparency and fairness in the trading of commodities. Aspirants preparing for the UPSC exams should be familiar with this important legislation and its implications for the Indian economy.