Are futures to be blamed?

Are futures to be blamed?
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First Published: Mon, Apr 14 2008. 12 05 AM IST
Updated: Mon, Apr 14 2008. 12 05 AM IST
Banning futures trade in commodities is widely considered essential to tame inflation. Politicians routinely demand it. The Forward Markets Commission (FMC) feels otherwise.
FMC chairman B.C. Khatua on Sunday pointed out that commodities such as steel, fruits and vegetables that have contributed substantially to inflation are either not traded on commodity exchanges or the size of futures trade is small compared to the total market.
He may be more right than wrong. The solution does not lie in banning futures trade, but in empowering the regulator. More may be required. For example, controlling the so-called dabba trade, whereby brokers engage in trade outside the commodity exchange in a bid to save transaction costs, may not be easy. It’s not only a problem of giving more teeth to the regulator, but also that of removing perverse incentives that plague the system.
Unless this is done, it must be accepted that speculators are performing a useful economic function, even if it fuels inflation.
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First Published: Mon, Apr 14 2008. 12 05 AM IST
More Topics: Future trading | FMC | Stocks | Inflation | Views |