CAG may study food inflation-futures link

CAG may study food inflation-futures link

New Delhi: Even as food price inflation continues to stay in the double digits, the Comptroller and Auditor General (CAG) is proposing, for the first time, to explore the linkages between inflation and futures trading in wheat and rice, as part of an audit that will look at the country’s agriculture and civil supplies sector.

The CAG is the country’s external auditor, tasked with looking into the efficacy of government programmes as well as auditing Central and state government books.

Two CAG officials, who did not wish to be named as they were not allowed to speak on the matter, said the external auditor was still trying to understand and define the scope of the proposed audit, adding that the preliminary thinking on the issue was to explore linkages between the agriculture sector and civil supplies.

An index of food articles compiled by the commerce ministry showed an 18.65% increase in the week ended 12 December from a year earlier, staying near a 11-year high.

CAG officials on Tuesday met executives from the Forward Markets Commission (FMC), which regulates futures trading in India, according to officials at the external auditor, who spoke on condition of anonymity.

FMC officials could not be reached for comment.

“There are a lot of doubts about whether wheat and rice futures affect price," said a senior CAG official. “It is a very interesting but very complicated field. We will have to plan it (the audit) out."

Another official, who also did not want to be named, said the agency decided to undertake the audit after taking cognizance of concerns over inflation.

The official said the CAG used a risk-analysis model to decide which government programmes or sectors should be audited each year.

“We have a certain methodology (to decide which areas should be audited each year)," the official said. “It is not subjective."

The audit should be conducted within the next year, the officials said.

“A similar committee under Abhijit Sen, which studied the linkages between the futures market and price rise two years back, could not draw strong conclusions," said N.R. Bhanumurthy, economist at the New Delhi-based think tank National Institute for Public Finance and Policy.

“The ambiguity was mainly due to the lack of information. Hence, it makes sense for the government to get back to the issue."

The CAG might be able to draw more definite conclusions as more data is available now, Bhanumurthy said.

Asit Ranjan Mishra contributed to this story.