Economist and member of the Planning Commission Abhijit Sen has been in the news for the controversial and inconclusive report on futures trading submitted to the government by a panel he headed. Sen himself would rather talk about agriculture. The professor at Jawaharlal Nehru University wonders in an interview with Mint why people are more interested in the futures market which is a “dud” than appreciating that in a world riven by food crisis, India is the only country that has successfully managed both food security and prices.
Edited excerpts:
Like a true economist, you seem to have made everybody, including the Left, unhappy with your report.
Firm stand: Planning Commission member Abhijit Sen says India should never have allowed futures trading in rice and wheat as it is more suitable for commodities such as spices, seed and some oils. Photo: Madhu Kapparath / Mint
Obviously, because we haven’t said a damn thing. Since 2003, one knew the difficulties and that these were really to do with the underlying spot markets—that they are extremely poor, not very well integrated, with large intra-market differences. Yet, there was a feeling we should just go in this direction.
If we really wanted to have a market and create products to help people other than those who participated in the market, the evidence that we have found, given in the appendix of the report, is that hardly any farmer participates (in the futures market) and hardly a trader actually hedges on it. The only guys who hedge a little bit are the big processors (of oilseeds) and I have nothing against them.
Second, it is very clear that in well over half the commodities, more than half the contracts cannot be hedged. So you don’t have contracts that lead to risk-sharing. So, on the one hand, we have a situation where inflation was high, though we can’t really say it was because of futures, and on the other, you didn’t have risk mitigation and reduction in volatility. Where does then the balance sheet lie? If you were somebody like me who gives marks to students, I couldn’t give it high marks. But there were others in the committee who wanted to do so, probably because it was the thing to do.
So if it is not serving the farmers, be selective and for heaven’s sake, don’t get into a stop-go situation and don’t get into a situation where there is a huge disconnect between the spot and the futures (markets). That’s the wrong way to proceed. Before 2003, all committees listed a number of commodities that were to be kept out. We’ve gone further and said if you want futures, concentrate on the spot side, consider a national spot market and use the commodities transaction tax to get the spot right. Then as things develop, you can have simple options, over-the-counter products. Right now, for people scared of inflation, it’s not a great thing. It’s a dud if ever there was one.
From what you suggest then, rice and wheat futures have no future at all.