Futures caused the market manipulation

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: Futures trading in wheat, rice and pulses like tur and urad has been suspended by the Forward Markets Commission as it caused market manipulation, leading to a rise in prices. But, still, futures trading is being carried out in a number of agricultural commodities.

The government knows for certain that futures trading in farm commodities is the cause for market manipulation. Finance minister P Chidambaram, while presenting Budget 2008-09, slapped a commodities transaction tax (CTT) on options and futures on the lines of the existing securities transaction tax. “The commodity futures have come of age in the country and should be treated at par with the equity market,” he had said. Chidambaram also brought the commodity futures exchanges in the ambit of service tax. These measures were aimed at curbing manipulation.

But the government’s move is only a piecemeal approach although it has realised the damage futures trading in agricultural commodities can cause. It should nip the problem in the bud by banning futures trading in all agricultural products.

There is a wrong notion that the farmers are benefiting from the existing futures trading in the country. The farmers get the lowest price for their produce in the season at harvest and, thereafter, the produce passes into the hands of traders and corporate houses that manipulate high prices for commodities in the futures markets. Farmers have no opportunity to participate in this.

The Economic Survey 2007-08 clearly says: “Direct participation of farmers in the commodity futures market is somewhat difficult at this stage as the large lot size, daily margining and high membership fees … work as a deterrent to farmers’ participation in these markets. Farmers can directly benefit from the futures market if institutions are allowed to act as aggregators on behalf of the farmers.”

Farmers have no time to participate directly in the futures markets. They have to prepare the field after harvest for the next crop. The concept that institutions or corporate houses should act as aggregators on behalf of farmers amounts to leaving the peasants at the mercy of these marketing giants.