Mumbai: India’s commodity futures trade is likely to see a significant boost after the federal government removed a two-year-old ban on wheat futures and on the election of a Left-free coalition at the centre, industry players said.
“This (removal of ban) is a much awaited step...it’s likely to boost trade in agri-commodities futures in India,” said Harish Galipelli, head of research at Karvy Comtrade Ltd.
Agri-futures trade shrunk from 36% of total trade in 2006-07 to a mere 12% 2008-09, manly in the absence of trade in wheat, rice and two varieties of lentils, which were banned in early 2007.
India on Friday removed a two-year-old ban on wheat futures, and on Saturday elected a stable government without the Left as a coalition partner, restoring investor confidence, analysts said.
India banned and suspended futures trade in some commodities in 2007 and 2008 under pressure from the Left -- then a key ally -- which said the futures trade had stoked inflation.
Last year a committee headed by Abhijit Sen probed the issue but did not find any conclusive link between futures trade and rising commodity spot prices.
“Earlier government couln’t lift ban on wheat futures under pressure from Left. Now the new stable government is sure to boost confidence,” said Anil Mishra, chief executive, National Multi-Commodity Exchange, the third biggest bourse by trade.
Analysts said the ban on futures trade in commodities such as wheat and rice and temporary suspension in soyoil, chana, rubber, and potato, saw participants switching from agri-commodities to bullion and base metals, which mirror global markets.
“Very positive for our exchange.........wheat was earlier an important contract for us....now it’s back. It should boost our volumes and help various value chain participants in wheat,” said Madan Sabnavis, chief economist at National Commodity and Derivatives Exchange (NCDEX).
Part-owned by Goldman Sachs, NCDEX commands about nine-tenths of India’s agricultural futures trade. Trade on NCDEX fell from 32% of total trade in 2006-07 to 10% in 2008-09.
Three of the country’s biggest commodity bourses confirmed to Reuters that they had approached regulator Forward Markets Commission on Monday morning and would be able to launch the wheat contract, pending approval.
Analysts and commodity exchanges said they expected participation from wheat producers, traders and exporters.
“We are expecting the producers and exporters to take part in the price-risk management in wheat as soon as the futures is launched,” said Mishra.
Last week Trade Secretary G.K Pillai said India will allow export of 2 million tonnes of wheat after elections.
Domestic wheat futures may help Indian exporters to lock in their price risks at a time when Indian wheat is expensive to comparable qualities in global trade.
India has 22 commodity bourses, three of which operate at the national level and a fourth expected to be launched by June end. Total trade grew 29% in 2008-09 to Rs52.49 trillion in 2008-09.
India doesn’t allow banks, and foreign funds to trade in commodities.