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Informist, Monday, Nov. 11, 2024

 

By Afra Abubacker and Pallavi Singhal

 

NEW DELHI — The government will take into account the need for price discovery and reduced price volatility while reviewing the ban on futures trade in agricultural commodities, NITI Aayog member Ramesh Chand said. The ban on derivatives trading of seven agricultural commodities is set to expire on Dec. 20. 

 

"We are still having high inflation in food, which takes overall inflation to a much higher side. But at the same time, the need to use new kinds of instruments for price discovery which can help in reducing price volatility are all factors that will be considered," Chand told Informist on the sidelines of the 10th convention of the Commodity Participants Association of India on Saturday.

 

In 2021, the government had imposed a ban on 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 combat rising inflation. The ban was extended consecutively each year till December 2024.  

 

Citing India's growing global trade and industrial use of agricultural products, Chand emphasised the need for derivative trade. "By 2030, one-third of the incremental output of agriculture in India has to be exported. And when you sell something outside the country, you find that new kinds of factors start influencing prices... To handle that kind of shock, the need for price discovery becomes much larger," Chand said at the event. 

 

He also highlighted how India's ban on futures trading has not really helped stabilise commodity prices. "In recent years, we have almost banned future trading... But despite that, you find that we have been unable to maintain price stability. Prices have become more and more volatile. I think that is due to the lack of the right price discovery."

 

By giving price signals, the futures market intends to support farmers, farmer producer organisations, and traders. However, with repeated government intervention in commodity derivative markets aimed at checking prices, there is no robust mechanism to hedge and discover prices.

 

The government has imposed multiple bans on futures trade in key agricultural commodities such as potato, chana, wheat, and soybean over the past decade. These restrictions started with the suspension of potato futures from the Multi-Commodity Exchange of India in 2014. However, according to a senior official of a trade association body at the commodity convention, the government is likely to open futures trading in at least two of the seven banned commodities.  End

 

Edited by Tanima Banerjee

 

 

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