A Parliamentary Standing Committee today said 'options' trading should be allowed in the commodity market for the benefit of farmers, observing that the futures trading does not impact the prices of agricultural commodities.
The Standing Committee on Food, Consumer Affairs and Public Distribution, chaired by Vilas Muttemwar, submitted its report on the Forward Contracts (Regulation) Amendment (FCRA) Bill, which was introduced in Lok Sabha in December 2010.
It has recommended that "options in commodities should be allowed as it will be beneficial to the farmers and the term 'the option in goods' should be clearly defined and be included in the definition of 'Commodity Derivatives'".
In its report, which was tabled in Parliament, the panel said that these instruments, particularly the options which are essentially similar to insurance products, will offer small producers a way to hedge against risk.
Their participation in large numbers will make the price discovery process more democratic and efficient, it added.
An option is a contract, which gives the buyer (holder) the right, but not the obligation, to buy or sell specified quantity of a commodity at a specific price on or before a specified time (expiration date).
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Concurring with the views of the Abhijit Sen committee on impact of futures on farm commodity prices, the panel said, "...The committee feel that the futures trading does not impact the prices of agricultural commodities."
The expert committee set up in 2007 under chairmanship of Planning Commission member Abhijit Sen to study the impact of futures trading in agri-commodity prices did not find any conclusive casual link between futures trading and inflation.