IJMA report seeks ban on futures trading

Advocating ban in the futures trading of jute, the Indian Jute Mills Association (IJMA) has submitted a report on the sector by an independent consultant to the Union government.

The jute industry has been blaming futures trading as one of the key reasons for the commodity's price rise. However,the jute crop size had been 15-20 per cent less than normal last year, at around 85 lakh bales, which had also been responsible for the price hike.

According to a report by Technopak Advisors, a small market size, vulnerability of raw jute's price to purposive manipulation by demand and supply forces, significant control on trade by government and limited private players and partial certainty of both demand and supply side put a question mark on the suitability of raw jute for futures trading.

In March 2004, futures trading of raw jute and jute goods started in the electronic exchange platform with their introduction at National Multi-Commodity Exchange of India Limited (NMCE). Later National Commodity and Derivatives Exchange Ltd (NCDEX) & Multi Commodity Exchange of India Ltd (MCX) added raw jute and jute goods to their basket of commodities. It was temporarily banned by the government from December 2005 to April 2006, when the market price of raw jute shoot up excessively.

“A similar situation emerged in June 2009, when the market price of raw jute shoot up by 134 per cent compared to May 2007. IJMA has earlier raised this issue with the government and other relevant authorities but with no success,” said Sanjay Kajaria, chairman of IJMA.

The study also notes that the speculators are the major participants of the raw jute futures market with little presence of hedgers.

“The study has also revealed that the benefit of the increase in raw jute price is not reaching to farmers either. It is the intermediaries who are minting money at the expense of jute trade and Government, who is a major buyer of jute products.

Futures trading is not only making the Indian jute sector uncompetitive but Government has also wasted more than Rs 100 crore through purchase of B-Twill bags since March 2004,” added Kajaria.

The Indian jute sector supports nearly 4 million farm families, besides providing direct employment to about 2.6 lakh industrial workers and livelihood to another 1.4 lakh persons in the tertiary sector and allied activities.