Futures stoking inflation, says Jairam Ramesh

Futures stoking inflation, says Jairam Ramesh
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First Published: Mon, Feb 19 2007. 11 31 PM IST
Updated: Mon, Feb 19 2007. 11 31 PM IST
Trading in commodity derivatives has fuelled inflation in India and the government will look at the role of futures in driving up prices, minister of state for trade Jairam Ramesh said on Monday.
“Commodity futures are not without fault, not without blemish,” Ramesh said in an interview. “I think forward markets have driven up prices and the benefit of increased prices has not been cornered by farmers.”
Analysts defend futures trading—introduced in 2003 to help farmers hedge price risks —and say an expanding economy, in which consumption is rising faster than supplies, is stoking inflation. They blame the government for ignoring supply-side constraints and say futures are being made a scapegoat. Commodity derivatives, they add, merely signal an impending price movement. “Do not shoot the messenger if you do not like a message,” a top official at one of two national commodity exchanges said.
Ramesh said the government would also step in if exports of some commodities led to a further rise in domestic prices. “If the export boom is going to affect domestic prices, we will have to move in,” Ramesh said.
India banned the overseas sale of pulses last year and prohibited those of skimmed milk powder early this month.
India’s wholesale price inflation rate is at a two-year high, reaching an annual 6.73% in data released last week.
Speculation in the market can impact prices as traders hold on to stocks anticipating better returns in the near future.
Stung by the increasing cost of basic staples at a time when several key states elect new legislatures, the government last month banned trading in two varieties of pulses, an important source of protein for the poor. Officials should not take drastic steps to restrict the futures trade, the analysts add.
“No government wants to take the reform process backward,” said Rajni Panicker, head of research at Man Financial.
“Temporary bans on exports adversely affect our image as a long-term reliable supplier, but in a choice between domestic prices and being a long-term supplier, our priority is to make sure that domestic prices are under control,” the minister said.
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First Published: Mon, Feb 19 2007. 11 31 PM IST
More Topics: Money Matters | Commodities |