Quick Edit | Don’t shoot the messenger1 min read . Updated: 07 Aug 2009, 12:39 AM IST
Quick Edit | Don’t shoot the messenger
Old Hindi films from the 1960s and 1970s had a simplistic theory of inflation: It was the fault of pot-bellied hoarders and speculators who denied the poor cheap grain.
But it is distressing to see similar attitudes seep into national policy debate even today, each time food prices start rising. Then comes the political clamour to ban futures trading. It was done in 2007 (for tur, urad, wheat and rice), in 2008 (for chana, soya oil, potato and rubber) and in 2009 (for sugar). The earlier bans have since been revoked.
We fear that there will be calls for similar action now that prices of many pulses are making dal-roti an expensive affair for millions of poor.
All it amounts to is shooting the messenger.
Futures prices tell us in advance that there could be shortages around the corner, information that spot prices do not reveal. How spot prices tend to move to levels predicted by futures markets earlier has been well documented.
The government should be using futures prices as a sort of early warning signal, rather than suppressing them.