?Forward trading to benefit farmers?

The Multi Commodity Exchange of India has said that forward trading of agriculture commodities will be hugely beneficial to farmers. It has also said the move will not push up prices of agriculture commodities, as projected by the Left parties.

?Prices of commodities don?t depend on the forward trading. It mainly depends on the fundamentals of specific commodities, and price rise occurs as a result of an imbalance in the fundamentals,? MCX deputy managing director Massey Joseph told FE in an exclusive interview.

India is one of the biggest producers of spices, tea and minerals. ?Yet due to an underdeveloped commodities market, India doesn?t decide the prices of many of these commodities,? he said, adding that the move would enable India to decide the prices of certain key commodities.

According to Joseph, the price of a commodity depends on fundamentals, such as demand and supply, prevailing prices and wear housing facility. He said despite ban on the forwarding trading of many commodities, such as wheat, rice, cereals etc, prices had risen in the last one year. ?Inflation and global demands also impact prices of commodities,? Joseph pointed out.

The Left parties have consistently opposed the government?s move to empower the Forward Market Commission (FMC) and allowing foreign institutional investors (FIIs) and the foreign direct investment (FDI) into the commodities trade. They fear that the move will lead to speculations in the market.

While welcoming government?s decision to allow the FDI and FIIs into commodities markets, he said it would also lead to heavy capital infusion for bringing in Indian exchanges on a par with top international exchanges. Joseph said the government?s approval for the amendment of FCRA clears the deck for the introduction of long-awaited options trading in commodity derivatives, which will allow farmers to hedge their price risk at the lowest cost.

MCX, located in Mumbai, is one of three multi commodities exchanges in the country; the others being National Multi-Commodity Exchanges in Ahemedabad and National Commodity and Derivatives Exchanges in Mumbai.