It has been a month since the union government suspended futures trade in refined soya oil, potato, chickpea and rubber for four months, with a view to controlling inflation. What?s the data saying? Barring a marginal decline in the spot prices of potato, none of the other three commodities has shown a significant fall in prices. The spot prices of refined soya oil, which were largely blamed for the spurt in the price of the overall edible oil basket, has in fact risen by almost 11% since futures were suspended. Rubber, another commodity that was blamed for spiraling prices, has risen by almost 31%. The main reason for the upward swing in the prices of both these commodities has been their close link with global markets, where a spike in crude oil rates has pushed up edible oil prices. Edible oils are being increasingly used for making biofuels and whenever the price of oil moves above $50 per barrel, biodiesel conversion becomes viable. At present, crude oil is hovering around the $120/barrel-$122/barrel after testing an all-time high of around $135 per barrel. As a consequence of this, crude palm oil prices also threatened to reach 4,000 Malaysian Ringgits in April, but have come down since then as crude oil price has also softened. India imports almost half of its annual edible oil consumption of around 12 million tonnes. This is because of low domestic oilseed production. So any spike in global prices is bound to have a cascading impact on local prices.
Data also shows that prices of potato and chickpea have moved up in the last four months. Potato prices in the spot market have dipped by around 12% in the last one month, mainly due to bumper output; anyway, potato didn?t account for much volume in the National Commodity and Derivatives Exchange. Chickpea prices have largely remained flat because of higher output. So to repeat what we have argued many times: the decision to suspend futures trading was a purely political exercise with little or no economic evidence to support it. Plus, the suspension of futures has deprived farmers cultivating soybeans and pulses of getting an idea of the price that their produce will fetch in international markets. The government, in a wrong-headed attempt to protect the aam aadmi, has hit the aam kisan.
