Advocating a sea-change in policy approach to commodity markets and agriculture that has seen growth decline to 1.6% in 2008-09 in the later, the Economic Survey for 2008-09 emphasised the need for removing the remaining ban on futures contract in various commodities as would help in better price discovery for farmers and others. The Survey also pitched for deregulation of sugar and fertiliser sectors from government control, by giving subsidies directly to consumers from the current practice of giving it to producers.

The Survey advocated to bring all regulators, including commodities market regulator, Forward Market Commission (FMC) under the Securities and Exchange Board of India (Sebi) to encourage integrated development, a proposal which is bound to invite strong reaction from players in the commodity markets.

?Lift the remaining ban on futures contracts to restore price discovery and price risk management… Its effectiveness depends on the wider participation of all the stakeholders? categories,? the Economic Survey said.

The Survey also suggested reviewing and phasing out of surcharges, cesses and transaction tax like the Commodities Transaction Tax (CTT).

In early 2007, the government banned futures trade in wheat, rice and some pulses to control rising inflation. Simultaneously, it also formed a committee under the chairmanship of Planning Commission member Abhijit Sen to study the impact of futures trade in spot market prices of essential commodities. The committee after careful deliberation came to the conclusion that there was ?no conclusive evidence that futures market impact spot prices.?

However the findings were ignored and futures trading were suspended in four more commodities again to control inflation.

Among other things, the Survey also raised concern over the declining investment in farm sector?that has seen share of agriculture and allied sector dip in gross capital formation from 10.3% in 2002-03 to 7.0% in 2006-07.

Emphasising on improving farm productivity to ease the current demand-supply situation that is stoking food inflation, the Survey said, ?on the supply side, the yield of most crops has not improved significantly and in some cases downwards…There is clearly a need for renewed focus on improving productivity.? The Survey also suggested that the government should extend spot commodity trading in electronic form to agriculture markets by involving Agricultural Produce Marketing Committees .

The Survey pointed out that the scope to increase the cultivable area in the farm sector is limited and farm size has been shrinking.

On rationalisation of duty structure of imported food grains like cereals, pulses and edible oils in a way that would save the consumer on hand and also protect the interest of poor producers, the Survey suggested a price band for domestic prices within which imports and exports are allowed without any duty control.

?If international prices change beyond this band, domestic prices would be systematically dampened through imposition of variable import and export duties, depending on whether international prices fell below the lower band or rise above the upper band respectively,? the Survey said.

On the rising, food inflation that has galloped to almost 6.8% as represented by the WPI, from 6.4% in 2007-08, the Survey points out that ?high domestic food prices though moderating of late, could undermine inclusive growth, in particular, the effort to combat poverty.?

Inflation for the week ended June 20 dropped to -1.3% from -1.14% from a week ago, but the rate of growth in prices of fruit and vegetables during the week ended June 20 accelerated by 0.6%, while the non-food items became expensive by 0.3%.

?Domestic inflation rate has been lower than global rate. Global inflation in food was 66% to -26%, in Wholesale Price Index it was 8%-10%, it noted.

Acknowledging that agricultural imports by India are limited, the Survey said, the constraints in the global agricultural production might exacerbate the supply side concerns in country.