‘Futures markets are not responsible for price rise’

‘Futures markets are not responsible for price rise’
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First Published: Wed, Jun 06 2007. 12 30 AM IST
Updated: Wed, Jun 06 2007. 12 30 AM IST
Mumbai: A1976 batch officer of the Indian Administrative Service, B.C. Khatua took over as chairman of the Forward Markets Commission, which regulates the commodities markets, on 31 May.
In his first interaction with the media, Khatua says the impression that futures trading moves prices of commodities is wrong. Starting with the caveat that he is only “three days old in the organization,” Khatua says his priorities are to regulate and control the market on the one hand, and promote and help deepen it market on the other. Edited extracts of an interview with Mint:
To what extent are you concerned about the market being driven by speculative trading? What are you doing to correct this?
There are some misconceptions about the utility of the futures market and the role played by the commodity exchanges. There have been apprehensions in some sections that futures markets are responsible for price rise in some agri-commodities. In reality, the supply-demand gap was primarily responsible for the price rise. The futures markets are not prima facie responsible for price rise, since they only perform economic functions of price discovery and price risk management.
The criticism that the future’s trade is solely driven by speculation is not correct.
Food processing companies are getting involved in the commodities market to hedge againstspot prices. What do you think of this trend?
I think they have a positive role to play, particularly because as much as 30% of food in India gets wasted. There is no availability of cold storage facilities and transport is inadequate. This affects farmers and consumers. Given this wastage, adding value to food products will strengthen their scope and stabilize prices.
Recently there were bans on futures trading of tuar dal and wheat. Do you think this affects market participants’ confidence?
Whether right or wrong, a decision has been taken. The decision might be taken on sentiments, or to divert public attention. I am not sure about the reason behind this. But once the decision is taken, it does undermine the market confidence.
However, there are no short-cut answers in a democracy. We have to be patient and try to work within the system to see that misconceptions or inhibitions in the system are eradicated. There is adequate information available for people to take informed decisions. We do not always take decisions rationally. When there is inadequate information, we tend to take decisions irrationally or injudiciously. While it is disheartening, we should take it in stride, and try and work around it.
What do you think exchanges should do to ensure transparent and efficient functioning of the commodities market?
There are a few things I would expect them to do. I think they should be impartial and fair; not play favourites.
They need to provide contracts that are legally tight, without any loopholes.
An exchange must enforce its authority to ensure that the market operates within the rules provided and ensure that deliveries are done at each settlement date.
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First Published: Wed, Jun 06 2007. 12 30 AM IST
More Topics: Money Matters | Commodities |