Low prices may trigger revocation of futures halt

Written by Commodities Bureau | New Delhi, Jul 30 | Updated: Aug 1 2008, 05:24am hrs
A sustained fall in prices of four agriculture commodities-futures trade in which were suspended in May-could lead to revoking of the suspension.

In May, the government suspended futures trade in potato, refined soyaoil, chana, and rubber for a period of four months, to check rising prices.

According to official sources, the union consumer ministry is 'open to the idea' of recommending a revocation of futures trade. The suspension comes to an end on September 2006.

This could also pave the way for resumption of futures in wheat and rice, which were banned in 2006. "The consumer affairs ministry is closely monitoring the situation and will take a final call on recommending revocation of the suspension only after the period ends on September 6," a senior government official said.

The working of futures exchanges in India and also their regulator, the Forward Markets Commission, falls under the ambit of the consumer affairs ministry. The government suspended futures trade in potato, refined soyoil, chickpea (chana), and rubber on May 6, for four months, to control surging inflation that has threatened to touch double digits.

However, data collected from various sources showed that barring potato, prices of most other commodities have not shown a definite declining trend.

Potato-the only commodity, whose prices have declined after futures were suspended for four months, has dropped by almost 19% since May, while prices of all the other three commodities have shown a rising trend. Rubber prices have risen by around 14.23% since May, while refined soyoil has risen by around 19%, chana went up by around 2% since May. "Potato prices dipped because of bumper production, which increased supplies, not connected to banning futures," the official who didn't wish to be named said. It earlier banned futures in wheat, rice, and tur dal in 2006, as their prices rose sharply.

Recently, a standing committee of the Parliament favoured continuation of the ban on farm commodities futures on the grounds that Indian farmers are not yet ready for such a price discovery mechanism. It said, though overall farm futures are beneficial for farmers, it is not suitable in the Indian context, as more than 80% of the farmers are small and marginal who are not benefiting from the trade.

Earlier, a committee to study the impact of farm futures on spot prices, headed by eminent economist Abhijit Sen, had found no connection between spot prices of commodities with their futures prices.

Although the committee didn't suggest continuation or discontinuation of the futures trade, the central government suspended futures in four commodities within days of its submission to the government.