Cotton crop for the current year is estimated to be good and the cotton supplies would be far more adequate. Already there is a fear of cotton prices crashing. How would cotton futures trading support the prices and arrest undesirable reeling down of the prices?

Futures trading acts as a speed breaker and also helps in reduction in price volatility. However, the real price trend will ultimately prevail based on the demand and supply position. Futures trading will only tame the price volatility into a manageable position.

How would the illegal trading in cotton be stopped after the resumption of official trading? What role would your office play in arresting this practice?

At present, cotton is illegally traded at Mansa and Bhatindain Punjab for Bengal Deshi and staple cotton; in Surendranagar in Gujarat for bedata kapasand Ahmedabad for V-797. Once the legal structure giving a regulated platform for speculation is available, illegal trading will automatically reduce in due course.

Further there is special cell in the Ministry of Civil Supplies armed through Forward Market Commission (FMC) to stop illegal speculation and encourage legal trading along with hedging in commodity exchanges. Our office does not have direct regulatory power to arrest this practice of illegal trading.

How would the cotton growers be the beneficiaries of the price discovery mechanism of the cotton futures trading? Will farmers too participate in the futures market?

Farmers are likely to benefit even without using futures market directly. They can get the price indicator and market their produce at a correct level of prices. They can plan growing various competing commodities. In the absence of a well-functioning forward or futures market, farmers bear the brunt of price instability. With futures market, traders or processors need buildlarge inventories to cushion against unfavourable price movements. Farmers cooperatives can participate directly in the futures market either by becoming a member or through intermediaries and brokers. Cotton growers have little reason to trade in the exchange unless there are sufficient number of speculators willing to cover the risk.

What is your opinion about the cotton exchange merging with other exchanges?

Having a large number of exchanges trading the same commodity results in spreading the liquidity and volumes and impairs the efficacy of the price discovery and risk management functions of futures market. Merging cotton exchange with other exchanges depends on the progress and understanding of this movement of futures trading.

However, looking to the country's position as the third largest cotton producer in the world, a separate cotton futures exchange has a greater potential as against merging.

What are the issues relating to the cotton futures that come under the purview of youroffice?

Our office can use this price as a barometer for price trends for our cotton economy in general which will help monitor and promote cotton and other value added items. It would help us a price indicator to the user industry and the producer.