Ban on futures trading fails to check prices

Domestic prices of rice, wheat and tur "" the three commodities in which forward trading was banned about a year ago "" have increased since then, thereby showing the negligible impact of the ban.

Only urad prices have declined after the ban. While trading in urad and tur was banned in January last year, wheat and rice trading was stopped a month later in a bid to control their prices.

Wheat prices, which were ruling at Rs 1,100 a quintal when trading was banned, have marginally increased to Rs 1,130 while rice prices have gone up from Rs 1,245 to over Rs 1,700 a quintal.

Tur has increased from Rs 2,340 to Rs 2,720. Urad prices, however, have slipped from Rs 3,550 a quintal to Rs 2,600 a quintal.

Apart from banning futures trading, the government has taken numerous steps in an effort to contain prices of these commodities and check inflation. It banned export of pulses, wheat and wheat flour while regulating export of rice by imposing a minimum export price.

It also imported 1.8 million tonnes wheat and contracted import of 1.4 million tonne pulses. It has permitted duty-free imports in wheat, rice and pulses.

"The purpose of futures trading is price discovery. The price you see in the market on Monday is based largely on demand-supply conditions and the futures price does not significantly affect the spot prices," said P H Ravikumar, MD & CEO of the National Commodity and Derivatives Exchange.

"The ban has affected our business as the exchange has strong leanings towards agri products. The ban and subsequent scrutiny that agri products went through (through heightened margin directives and slashing of open interest levels) had reduced the participation levels on our exchange. However, the lowering of margins by the end of December 2007 and the increase on position limits in the last week of February 2008 had brought back interest in the markets, he said

Meanwhile, the committee on futures trading, headed by Planning Commission member Abhijit Sen, is yet to submit its report. Set up in March last year, the committee was supposed to come out with a report in two months.

However, the committee got several extensions since May last year. It was set up to study the extent of impact, if any, of futures trading on wholesale and retail prices of agricultural commodities.

In an interview to Business Standard early February, Sen had indicated that the report was likely to get submitted before budget. However, it has not been submitted.

"We are very optimistic that the committee report will put to rest the misconceptions that future trading is leading to inflation," Ravikumar said.