Immediate ban on new futures trading in wheat, rice

MUMBAI: India, the world’s second largest producer of wheat and rice, banned futures trading in the two commodities to curb the fastest inflation in two years.

Trading will stop once existing contracts expire on the nation’s three exchanges including the National Commodities & Derivatives Exchange Ltd., 7% owned by Goldman Sachs Group Inc.

“Exchanges have been told not to launch new contracts in rice and wheat," Anupam Mishra, director at the Forward markets Commission, the commodities market regulator, said today by phone in Mumbai. “Trading can continue in existing contracts."

Rising prices of farm and factory products have become a liability for Prime Minister Manmohan Singh’s government as it faces state elections this year. Political parties including the communists, which support the ruling Congress party, have said futures trading in staple have stoked inflation.

“If all constituents demand a ban in futures trading, we will have to succumb to their demand," Agriculture Minister Sharad Pawar said in New Delhi on 21 February. “Trading in futures is not responsible for the increase in farm commodity prices."

India’s inflation rate has climbed to a two-year high as record economic expansion boosts demand for farm and factory products. Gains in consumer prices paid by farmers are at an eight-year high of 8.94%, while price increases for urban dwellers are the most in six years.

The government has in the past month reduced import duties on cooking oils, steel, aluminum, copper, cement and chemicals such as sulphur, and cut prices of auto-fuels. Last week, the government said it will sell 365,000 tons of wheat at below market prices to cushion consumers from rising food prices.

“We will continue to take more steps" to curb inflation, Finance Minister Palaniappan Chidambaram said yesterday. He will present the budget for the year starting 1 April today.

Domestic traders and producing and consuming companies are the main participants in India’s commodity exchanges, compared with the 13 million individual investors — three times the population of Singapore — who invest in stocks. India opened up its stock markets to overseas investors in 1993.

Overseas funds aren’t allowed to trade in India’s commodity futures market.

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