Government could lift ban on futures trading in 4 farm products

Written by Commodities Bureau | Kolkata | Updated: Dec 14 2008, 05:24am hrs
The ban on futures trading in rice, wheat, urad and tur might be withdrawn in the next couple of weeks as inflationary pressures have already eased, according to BC Khatua, chairman, Forward Market Commission (FMC). Khatua said that as of November 29, inflation had come down from a level of 12.5%, to 8% and that there are indications that prices of commodities would further soften.

Although the futures trading market was not at responsible for the rise in prices, the government as a precautionary measure banned the trade in futures. We have conducted a study to find whether futures trading was responsible for the price-rise, the commodity exchanges cannot be blamed, Khatua said. The FMC chairman said that low output of grains and the added high cost of logistics were mainly responsible for the rise in prices. We hope that in a few weeks time we will be able to withdraw the ban, Khatua said.

The government imposed the ban on futures trading in urad and tur in January 2007, and of rice and wheat in February 2007. Although futures trading of other commodities continued, the then finance minister P Chidambaram, considered futures trading in commodities as having manipulated the market and slapped a commodities transaction tax on futures trading in the budget of 2008-09 in line with the securities transction tax. He also brought commodity future exchanges under the ambit of the service tax.

According to Khatua, futures trading futures trading could give liquidity to the market and farmers as well as consumers benefit out of it if prices stabilised.

However, the Economic Survey of 2007-08 pointed out that for farmers directly participating in the commodity futures market was difficult because of the large lot size, daily margining and high membership fees.

Khatua said that the FMC was considering to do away with the uniformity of fees as this was creating an entry bar for smaller players. Rajiv Agarwal, an FMC member said that while the uniformity of fees would work out to be actually lesser for bigger players who transacted in large volumes, it would work out to be more for smaller players. The difference was 1: 16, which we have already brought down to 1: 4. We are seeing if this can be further brought down, Agarwal said.

Khatua said that the commodity market regulator was trying to introduce the Common Convergent Regulation System as there were already three regulators virtually overseeing the futures (FMC) and the spot markets.