The Securities and Exchange Board of India (Sebi) is engaging with the government to address challenges for the commodities market, including those around goods and services tax (GST), chairman Tuhin Kanta Pandey detailed on Monday.
Pandey stated that Sebi has flagged problems to the Department of Revenue, which the regulator wants the GST Council to consider to find solutions to issues in physical delivery in commodity derivatives.
“We have proposed that there could be an Integrated GST mechanism instead of the State GST. For delivery, the warehousing could be located in various places due to which they may have to take registration from all the states for the purpose of delivery. It is really cumbersome,” said Pandey on the sidelines of IMC Capital Markets Conference.
Several market participants and intermediaries have earlier made representations to the market regulator on the issues around GST.
Under the current practice, exchange-related deliveries may require the intermediaries to obtain separate GST registrations in every state where a delivery centre is located, even though the transaction is executed and settled through the centralised mechanism of exchanges.
Experts said that this can lead to separate state-wise filings, multiple registrations, reconciliation of challenges, and increased operational costs.
Treating such deliveries under IGST as inter-state supplies could allow seamless tax credit flow and centralised compliance, ensuring tax allocation to destination states through the existing mechanism, they added.
“The changes could help in increasing participation from institutional investors. With the commodity market now expanding like through doorstep delivery of gold, measures to fix GST-related issues will democratise the market. At present, if the intermediary is not registered in that specific state where the delivery comes, then it is a hassle,” said Narinder Wadhwa, managing director at SKI Capital.
Answering queries on participation from other institutional investors like banks and insurance companies, the Sebi chairman said that the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (Irdai) are not in favour of them participating in the commodity derivatives market.
Pandey said that the other regulators have “valid rationale” for not being favourably inclined for the segment and that the market regulator did not get a positive response from other regulators during engagement because of “certain concerns”.
He added, “They had their rationale that at this moment they don’t feel it right time because these are long term — the insurance is long term — so how will the commodity derivatives help””
In his speech at the conference, the Sebi chairman also highlighted the challenges that Mythos and similar artificial intelligence (AI) models bring, testing the market resilience.
While saying that the regulator was in touch with market participants and stakeholders on these issues, Pandey added: “Sebi will soon issue an initial advisory on risks emanating from such models and AI-led vulnerability-detection tools.”
He further cautioned that in an interconnected securities market, a single weak link can create wider risks and that regulated entities have to stay ahead of such risks through stronger cyber resilience and continuous monitoring.
“Algorithms may move faster than human controls. Digital platforms may become channels for fraud. This is especially relevant as next-generation AI models become more powerful. While these tools can help identify weaknesses faster, they can also exploit vulnerabilities at speed and scale,” he added.
On queries on enabling CKYC 2.0 — one KYC across the financial system — the Sebi chairman said, “The CKYC 2.0 is now under preparation. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is doing it and we are all contributing to it. We had meeting last week with CERSAI for identifying all the different points which need to be addressed. We may have something by July-end.”
