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Futures ban: Govt buys peace with the Left

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Rajesh Bhayani Mumbai
Last Updated : Feb 05 2013 | 12:35 AM IST
The list of commodities in which futures trading is disallowed is getting bigger by the day. The phased ban on wheat and rice futures, announced yesterday, came after a similar action on pulses, tur and urad in the last week of January.
 
Unlike last time when it banned the futures at one shot, creating difficulties for traders, the government took a more practical view this time by opting for a more gradual phase-out. The existing contracts will expire on maturity and positions will be allowed to be squared off.
 
If any position remains after that, these will be taken care of at the price on the day of settlement. The larger issue of futures, however, will be settled once and for all, with the government setting up a committee to look into the issue. The committee's brief is to suggest whether futures trading is desirable as far as essential commodities is concerned.
 
Traders, however, are keeping their fingers crossed as they feel the committee might take an unfavourable view on futures in essential commodities. Indications available suggest that the decision to phase out the futures in wheat and rice was prompted by the government's bid to buy peace with the Left parties.
 
The finance ministry apparently was not keen to extend the banned list but had to give in due to stiff opposition from the Left to futures in essential commodities.
 
A decade ago, the government of the day had ignored the Kabra committee's suggestion that essential commodities should not be part of futures trading. Traders say there is no reason to be concerned about futures now as things have improved with a transparent trading mechanism in place.
 
Traders feel that there are more problems in store and the ban on futures is just part of a bigger battle. With the electoral reverses in Punjab and Uttaranchal, the government wants to procure 15 million tonnes of wheat during the season. The option before the government is either to give bonus to farmers or impose some kind of price control..

 
 

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