'Options trading must for commodity futures'

Both the opponents and proponents of the futures trading in commodities are eagerly awaiting for the report of the experts committee, headed by Planning Commission member Dr Abhijit Sen, on the role of futures trading in price rise. The report is expected by the end of the month. In an interview with Rajesh Bhayani, Sen talks about the various issues related to futures trading. Excerpts:

Why is the delay in submitting the report?

My first priority is Planning Commission and I was busy in finalising the details (to be submitted by the end of the month) of financial resources required for agriculture sector during the next plan. Very soon the committee members are going to hold a meeting and, hopefully, that will be the last meeting before we submit our report.

What are the areas that the committee is focussing on?

We will strictly refer to terms of reference which are: 1) commodity futures trading responsible for price rise, 2) if yes, what measures are required to reduce the impact, and 3) how to improve farmers' participation in commodity futures.

Do futures really impact commodity prices?

If one says futures trading doesn't at all affect the prices, then tell me what's the use of it. Futures is an important tool for price discovery. A recent report released by a team of Indian Institute of Management, Bangalore, failed to establish that futures trading did not result in price rise. Hence our job is more critical.

What needs to be done to ensure farmers' participation in futures trading?

Farmers will be interested in futures trading only if they can hedge properly and at lower cost. Hence, options trading has to be introduced. There is a need to create an infrastructure by which all information can be made available to farmers and traders. Spot markets should be strengthened. To increase depth in futures market, its convergence with the spot market and physical market is also necessary.

All these reforms hinge on the committee report...

I don't think other reforms depend on our report. Many decisions depend upon the two Bills "" the Forward Contract Regulations-FCR Amendment Bill and the Warehousing Bill "" pending with the Parliament. Options trading, which can bring down the cost of hedging, cannot be permitted unless the FCR Act is amended.

Issues before us are long-term in nature but reforms in commodities trading do not depend on our report.

Other things won't change because of our report. We will meet and complete the report as fast as possible, may be by the end of the month.