No firm proof of futures trading fueling prices : Panel

No firm proof of futures trading fueling prices : Panel
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First Published: Mon, Apr 21 2008. 03 35 PM IST

Delisting of tur, urad rice and wheat from the futures market has not made any difference in the price movement of these commodities, the report observed.
Delisting of tur, urad rice and wheat from the futures market has not made any difference in the price movement of these commodities, the report observed.
Updated: Mon, Apr 21 2008. 03 35 PM IST
PTI
New Delhi: An expert committee, whose report is being awaited by the government to decide whether futures trading on essential commodities be banned, has found no firm evidence that such trading was leading to rise in prices.
“It cannot be concluded emphatically whether futures trading has in anyway fueled increase or volatility in prices of agricultural commodities,” the Committee’s draft report said.
The government had set up an expert committee under the Chairmanship of Planning Commission member Abhijit Sen to study the impact of futures trading on prices of agricultural commodities.
Agriculture and Consumer Affairs Minister Sharad Pawar had assured Parliament last week that government would take a decision on whether or not to ban futures trading in food commodities after 10 days if the Sen Committee did not submit the report by then.
Sen had told PTI on last Thursday that he would submit the report this week for which the draft was circulated among the members of the Panel on Saturday.
Delisting of tur, urad rice and wheat from the futures market has not made any difference in the price movement of these commodities, the report observed.
The committee pointed out that blaming the commodity market for fueling inflation is not unique to India and it is a global phenomenon and markets get accused in the developed countries such as the US.
Delisting of tur, urad rice and wheat from the futures market has not made any difference in the price movement of these commodities, the report observed.
In view of criticism about futures trading, the report said it is essential to minimise the potential adverse impact of futures trading on prices of agricultural products.
“Well functioning futures markets have the potential of bringing about price stability over the medium to long term,” the Panel said, while observing that these markets help in price discovery and price risk management.
The committee favoured the role of speculators in the futures market as they provide liquidity to the market.
“...if only the farmers and the consumers were to operate on the agricultural commodity markets, there is likely to be mismatch in their respective marketing strategies,” it said.
An efficient and transparent market with sufficient depth of participation will encourage responsible and informed speculation, the report argued.
The Sen panel has suggested formation of a committee on commodity market similar in the capital market to deliberate on broad policy issues concerning the development and regulations of the futures market.
The report noted that bank’s participation in commodity market is “critical”, as this would help small and marginal farmers access the futures market.
“Their (Bank) presence is required not only to extend the finance against warehouse receipts but also to enable small and marginal farmers to access the commodity markets. Without the availability of such support infrastructure, the full benefit of risk transfer and price information will not accrue to farmers,” it added.
The committee suggested that commodity market regulator FMC and commexes should do more for dissemination of futures price through various channels.
The draft report also established that futures market efficiency is contingent on the efficiency of spot market.
“Whenever futures market try to grow faster than the under-developed physical markets of underlying commodities, the disconnect between the two gets widened, thereby opening up futures market to the criticism of being driven by speculators,” it said.
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First Published: Mon, Apr 21 2008. 03 35 PM IST