Industry calls for ban on futures trading of jute

The recently introduced futures trading in raw jute on the Multi Commodity Exchange (MCX) has come in for sharp criticism from the jute industry, with the latter urging the Centre for an immediate ban on the futures.

The industry's appeal is currently being looked into by the textile ministry. The ministry is already in discussion with the ministry of consumer affairs, food and public distribution department (FPD) and the Forward Markets Commission (FMC).

According to the industry, futures trade in raw jute is a clear 'fatka and dabba' trade perpetrated by unscrupulous brokers and market operators, who care least about the industry, and are mostly interested in maximising gains. Such an action, the industry feels, can never be allowed to grow especially on jute, which is an essential commodity and is governed by Jute and Jute Textile Control Order (J&JTCO).

The Centre had earlier suspended future trading in wheat solely on this pretext. According to industry sources, the jute prices have gone up by Rs 107 a quintal ever since futures trade in raw jute started on the MCX on July 31, 2007. The daily closing rate on August 13 was Rs 1383.50 for August contract, Rs 1415.50 for September contract and Rs 1437 for October contract. The spot price was quoting at Rs 1250.50.

The industry representatives said that the recent raw jute speculation on MCX showed compulsory deliveries despite 'the contract'. The market speculators and operators escape the practice through delivery/purchase by paying 5 per cent penalty as mentioned in the penal provisions, they alleged. The penal margins being very low, the speculators are deriving benefits out of these contracts, thereby marring prospects for the industry.

Moreover, the industry argued, with the Centre making packaging of sugar and food grain compulsory in jute bags, the jute prices remaining stable is all the more necessary. The Centre has recently made the order under the Compulsory Jute Packaging Act of 1987.

"If prices of raw jute doesn't remain within limits, the cost of production of bags would shoot up, adversely affecting the operations of the food ministry, FCI and other state agencies, who will then be forced to pack the materials well above the market regulated prices and distribute through PDS," said an industry representative.

It has been pointed out to the government that due to 'speculative trade' on the National Multi Commodity Exchange (NMCE), Ahmedabad, in jute year 2005-06, the prices of raw jute rose exorbitantly and hoarding became a common practice.

At that point jute was not available in the market, forcing the industry to go in for 'block closure' of mills resulting in unemployment of almost 2.5 lakh workers and daily wage earners across the country.

The industry had then filed an FIR with the state police to investigate the whole activities of the NMCE and its brokers/sub-brokers and agents. Following this, the Centre took a series of steps such as fixing fresh prices of raw jute, registration of all dealers, traders or agencies holding raw jute and launching of de-hoarding operations.