The federal government on Thursday introduced a bill in Parliament that seeks to allow trading in commodity options and strengthen the sectoral regulator.
The bill replaces a presidential decree or ordinance issued in January this year to amend the Forward Contracts (Regulation) Act and Securities and Exchange Board of India Act.
India allowed commodities futures trading in 2003.
The cumulative trading volumes of 24 commodity exchanges surged to 35.96 trillion rupees until end February 2008 from 1.29 trillion rupees at the end of 2003/04 fiscal year.
But the regulator, Forwards Markets Commmission (FMC), does not have the requisite legislative framework to manage rapid growth in this sector, farm minister Sharad Pawar said in a statement.
Unlike India's autonomous stock market regulator SEBI, the FMC is controlled by government officials, under the Food and Consumer Affairs Ministry, and needs to seek government permission for many decisions.
"The government, therefore, has decided to restructure and strengthen Forward Markets Commission broadly in the lines of SEBI," Pawar said.
The commodities regulator will get powers to impose penalties on erring firms, investigate and adjudicate as and when required, he said.
The bill seeks to allow options trading in commodities, he said in a statement. Only commodity futures are allowed in India.
The large commodity exchanges -- the National Commodity and Derivatives Exchange, the Multi Commodity Exchange and the National Multi Commodity Exchange -- control 96.6 percent of the trade turnover, according to data from the regulator.
State-run trading firm MMTC Ltd plans to set up a commodity exchange in partnership with Indiabulls Financial Services Ltd to capitalise on the boom.