It says that managing price instability will be critical to the overall success and political acceptability of any reform strategy in the oilseed sector. To keep price volatility under control will require two distinct set of actions. First are measures to legalise market-based instruments to manage price risks such as forward and futures markets in oilseeds and its derivatives. Second together with liberlisation of oilseed exports, the GOI (Government of India) can establish instruments capable of blunting price spikes-sudden and generallyshort-lived rapid price increases or decreases, originating either from the domestic or the world market. The six proposals include the establishment of a stable, transparent and predictable foreign trade environment, the removal of physical and financial constraints to the storage and movement of oilseeds and its derivatives, introduction of support price mechanism and establishment of standard quality norms along with arbitration procedures under the aegis of an industry-wide body with official standing. It also calls for improving the regulatory and institutional environment governing the operations of forward and futures markets to ensure their orderly development once the ban on oilseeds, oils and oilseed meals is lifted. Among the steps involved are: Curbing discretionary interventions of the Forward Market Commission (FMC) by giving associations permanent recognition, automatically renewing contracts, standardising regulatory measures and withdrawing price ceilings and reverting to the original intentof the three-tier regulation model provided by the FR (R) Act. Under such a model, the government would still approve exchanges and set general legal and regulatory framework. The FMC would play a monitoring role, approve requests for the introduction of new futures contracts emanating from the commodity exchange associations and intervene when the situation warrants it. The FMC would need to be strengthened to fulfil its new responsibilities. The GOI should introduce a two-tier national brokerage regulation for the specific purpose of consumer protection and prudential rules for the use of risk management instruments by companies, the Bank states.

The participation of commercial hedgers including co-operatives and large institutional investors should be promoted through changes in income-tax rules, tax registration requirements and bans on participation. Commodity exchanges would need to upgrade their rules and regulations pertaining to trading procedures, delivery system, trade supervision in clearingoperations, promotional and development capacity and their implementation and monitoring capacity. Recognised exchange associations where co-operatives are invited to participate should be left free to design their own futures contracts on the basis of in-depth analysis of market potential and to experiment. As a last phase of reform foreign exchange hedging in conjunction with oilseed processing and trading activities-vegetable and edible oil imports and oilseed meals exports should be permitted,the Bank urges.