Futures ban flayed as inflation seen rising

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Even as Prime Minister Manmohan Singh said in Bangalore that the government was committed to taming inflation and bringing it down to reasonable levels, a government official indicated that inflation for the week ended April 26 is likely to be higher than the 7.57% for the preceding week, reported last Friday. “While fuel and manufacturing prices have stabilised, the prices of fruits, vegetables and tea have increased,” he said.

Meanwhile, the government’s decision to suspend futures trading in potato, soya oil, chana and rubber for four months, announced late on Wednesday evening, has been slammed by commodity market regulator Forward Markets Commission chairman BC Khatua. “The ban might not contain inflation as there is no linkage between inflation and futures trading, as already established by the Abhijit Sen committee,” he said.Khatua warned that the government’s decision would definitely impact the turnover of the commodities exchanges.

The National Commodity & Derivatives Exchange and the Multi Commodity Exchange—the country’s largest platforms for agri futures—saw trades slide by 40% and 12%, respectively, on Thursday.

The latest is the third government ban on commodities trading. To rein in prices of urad and tur, the government had halted trading in pulses on January 23, 2007. The ban was extended to rice and wheat on February 28, 2007.

In the capital, minister of state for industry Ashwani Kumar tried to stifle inflationary expectations, stressing that the government has the means to ensure prices are brought down further. “The capacity to exploit excess demand in the economy must be addressed by fiscal, monetary and administrative measures. More measures—both administrative and fiscal—are in the offing to control inflation,” Kumar said. India Inc needs to hold prices to remain competitive in the long run, for which it is advisable to shun windfall profits, he added.

He, however, said industry had assured him that it would extend all cooperation to the government to reduce prices, adding that the full effect of all the steps would be seen in coming weeks.