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Informist, Saturday, May 23, 2026

NEW DELHI – India's continued suspension of futures trading in select agricultural commodities has not systematically reduced food inflation or curtailed price volatility, according to Arcus Policy Research. Instead, the suspension has deprived market players of hedging and price discovery mechanisms, Arcus Policy Research said in a report. The research body said that commodity prices are primarily driven by supply and demand, global developments, weather disruptions, and trade policies rather than speculation in the futures market.

"Bans (on futures contracts) are imposed swiftly but reversed slowly; some have lasted nearly two decades," Shweta Saini, agricultural economist and chief executive officer of Arcus Policy, said at the release of the report. Commodities such as rice, tur, and urad have remained under suspension for almost 19 years since 2007. Soybean and chana futures trading was banned in 2008, and seven commodities, including wheat, mustard seed and its derivatives, soybean and its derivatives, chana, moong, and non-basmati paddy, were suspended in 2021 and extended yearly till 2027.

The research body studied prices of the soybean complex and chana before and after the ban was imposed and found that suspending futures trading did not consistently reduce retail or wholesale prices or limit price volatility. "Suspensions do not stabilise markets; instead, they weaken them. They remove transparent forward price signals, increase information asymmetry, reduce participation in formal markets, and push market actors toward informal or less efficient benchmarks," the report said.

Saini said the ban on futures trading is often justified on the assumption that derivatives markets are dominated by speculators, who thrive on volatility and do not materially benefit farmers. However, she argued that such conclusions are not backed by evidence and are often rooted in political sentiments.

"Bans signal decisive government action against inflation," Saini said, adding that policymakers often perceive that "the cost of inaction is higher than the cost of market intervention."

The report said even though most farmers did not participate in futures trading, they used futures prices to make informed decisions on which crop to sow or when to sell or hold back their produce. However, with the ban on futures trading, farmers have essentially lost access to collective market price signals. As a result, they are now increasingly taking price information from informal social media channels, which lack transparency or credibility, she added. 

Speaking at the function, Parvesh Sharma, a former bureaucrat and managing director of the Small Farmers' Agri-Business Consortium, reflected on the broader political consensus on agricultural marketing policy in India. "If there is one absolutely rock-hard political consensus in this country, it is the political economy of agriculture," Sharma said. "These decisions to ban are taken in spite of the information being available, and not because policymakers are not aware of market fundamentals," he said.

According to Sharma, who is also the chairperson of the National Association of Farmer-Producer Organisations, Indian agricultural marketing policy has consistently pursued a "price-suppressing policy" because it has an underlying bias toward appeasing urban consumers.

He also pointed out that the primary agricultural markets experience frequent government interventions, such as stockholding limits, export bans, and import duty hikes. Though these interventions disrupt trade and reduce farmers' realisations, the government continues to resort to such policies to appease consumers, he added. 

The futures market is a sophisticated tertiary market linked to the primary spot markets, Sharma said, adding that intervention in the futures market is only an extension of the government's restrictions in spot markets.

Sharma also said that dependence on informal rural capital infrastructure or networks limits reforms in primary agricultural markets. Regarding concerns about undue speculation, he said the government has to allow futures markets to develop sufficient depth and participation by ensuring policy continuity. "But if we keep banning it, we can never create confidence in the stakeholders to return to the futures market," he added.  End

Reported by Afra Abubacker

Edited by Saji George Titus

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