Banning futures trading in agri commodities is a retrograde step, say experts

Agri commodity prices have been on a tear with most of them gaining in double digits. Adverse weather, high container prices and labour shortages in the producing countries have triggered supply woes globally.

In India, a patchy monsoon and a weaker rupee have added to the concerns, forcing the government to intervene.

In an attempt to soften the blow of rising prices, the government has imposed a stock limit on pulses, edible oil and oil seeds.

The Securities and Exchange Board of India (SEBI) also cracked down on trading of channa and mustard by banning fresh positions in the futures market. With the ban, SEBI hopes to avoid the sharp rise in prices.

In an interview with Manisha Gupta, Siraj Hussain, Senior Visiting Fellow at ICRIER and Former agricultural secretary said, “We are in a global cycle of high commodity prices, as a result of which Indian prices are also ruling high. However, this is not the first time that the government has resorted to banning futures. In 2008, the UPA government had banned futures trading in four commodities. A committee under Professor Abhijit Sen, who was a member of the Planning Commission, was set up to examine whether there is a relationship between futures prices and spot prices, between inflation and futures prices. The committee did not reach any conclusion on whether the futures market causes price rise in the spot market.”

Dorab Mistry, Director, Godrej International, said, “Banning futures trading does not solve anything at all. A well-regulated futures market is actually an asset and India was moving along the right lines. Abhijit Sen, who is a scholar in these matters, could not come to a conclusion. He, in fact, alluded to the fact that banning futures trading does not work. What is done is done. The government should not go overboard and ban futures trading in soya bean and other things. Banning futures trading is a retrograde step. We did not take steps to build up our agriculture potential in the good years and therefore we are now having to take these emergency measures.”