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Informist, Thursday, Jun. 26, 2025

 

NEW DELHI – Banning futures trading in commodities is not a solution to contain inflation in the edible oil sector, as it is hampering price discovery and hedging and leading to a loss in market share, members of the edible oil industry said at a conference organised by the National Commodity and Derivatives Exchange in New Delhi.

 

Members of the edible oil industry expressed concern that the ban has had far-reaching consequences, including the inability of farmers to hedge against price risks, particularly when imports rise. Moreover, the absence of a reliable price benchmark for future shipments is making it difficult for Indian exporters to compete in the global market, they said.

 

The industry also said the lack of liquid contracts is affecting commodity trading sentiment, with a significant drop in volumes as many market participants are losing interest in the platform. Furthermore, the uncertainty surrounding government regulations, including the possibility of a ban on any commodity at any time, is deterring investors from taking positions in the market, they said. 

 

Instead of banning commodity futures, the industry advocated better management mechanisms, including the launch of contracts for products not currently supported by the minimum support prices, such as soybean and mustard meals, and the imposition of circuit breakers to address issues of price volatility and inflation.

 

The industry said retail prices often do not reflect wholesale prices, which is the primary reason for inflation in the country. By allowing commodity futures to function effectively, the industry believes that price discovery and hedging can be facilitated, ultimately benefiting farmers, traders, and consumers alike.

 

The government had in 2021 banned derivative trading in seven commodities--non-basmati paddy, wheat, chana, mustard seed and its derivatives, soybean and its derivatives, crude palm oil, and moong--for a year to check rising inflation. Since then, the ban has been extended many times. In its latest extension, the government has banned futures trading in the seven commodities for another year, till Mar. 31, 2026.

 

The decision to extend the ban by another year came despite significant lobbying by the National Commodity and Derivatives Exchange, which had been pushing for the trade to be resumed. The NCDEX had met government and Securities and Exchange Board officials several times, pressing them to revoke the suspension. 

 

The government in October 2024 permitted the trading of yellow pea futures contracts on the NCDEX. It had also allowed the NCDEX to launch futures of crude sunflower oil in November 2023. The steps had made traders hopeful of the government lifting the ban on other commodities. 

 

Studies by the Birla Institute of Management Technology and the Indian Institute of Technology, Bombay, in November last year, concluded that futures trading will aid domestic price discovery, reducing reliance on international price signals. The studies, sponsored by the NCDEX, highlighted the need for careful analysis of price movements and trading patterns internationally, as the ban has hurt farmers, farmer-producing organisations, and other value chain participants. End

 

Reported by Pallavi Singhal and Afra Abubacker

Edited by Saji George Titus

 

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