Wednesday, March 2, 2011

Whither Future Trading

The Futures Trading issue would again come back into agri-sector
debate.
The Working Group on Consumer Affairs headed by the Gujarat chief minister Narendra Modi in its report to the Prime Minister Dr Manmohan Singh has recommended among other things ban on Future trading of essential
commodities and also setting up of a Price Stabilization Fund.
It is worth recalling that the Forward Markets Commission, the official
regulator for future trading, made a veiled attack on the government and "political class" for banning futures trade in sugar earlier.

"This (ban) was a horrendous decision ..... we were not for it. But we took
the decision ultimately because we knew what was to come. If the sugar
price had doubled the manner in which it has without ban on futures
trade everyone would have blamed us," FMC chairman B C Khatua had said
last year addressing a conference on 'Future of Commodity Futures Market' in New Delhi.
In fact, the issue of speculative trading has assumed greater dimension with a large number of political parties, MPs and even
parliamentary panels recommending ban on the same saying the mechanism
has largely contributed in high price rise.
Members participating in the debate in parliament also from time to
time had demanded that essential food items like potato, onion and tomato be barred from speculative trading.
However, experts and even the Forward Markets Commission, the official
regulator for future trading, had made veiled attacks on the
government and "political class" for such contentions.
It goes without saying that there is overwhelming "ignorance" revolving around futures trade. "Some times policy decisions are taken in isolation and without assessing impacts," Khatua had said.
The pro-future trading think tank rather wax eloquent that contrary to the "misconception", the futures trading in commodities in fact is helping farmers as they would know of the stock situation and demand factors relating to specific commodities.
Well, even the government, especially the agriculture and consumer affairs ministry top brass has said time and again that futures trading is "not responsible" for price rise.

Not long ago, a top bureaucrat had admitted that certain decisions are taken by the government because of many other stake holders. The reference iis obviously to the political class, mainly those thriving on left and centre of left ideologies.
At present in many commodities, the farmers are getting only 20-30
percent of the prices of what the consumers are ultimately
paying. This relates to the problem of the intermediatories getting
away with the big chunk of the pie.
A study report brought out by ASSOCHAM last year also observed that "banning of agro-commodities all of a sudden .... such as ban on
sugar creates a very strong negative vibes in the overall
agro-business segment".
It recommended among other things making FMC an autonomous body and said
opening the markets to domestic institutional players such as banks,
mutual funds, financial institutions would lead to increased
participation from professional players ensuring further development and growth on domestic commodities exchange".

Liberalizing agro sector still remains a far cry.

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