No move to ban forward trading in essential commodities: Govt

The government today said there is no proposal to ban futures trading in essential commodities to control inflation. 

"No study has identified forward trading as one of the reasons for spurt in agri-commodity prices," Minister of State for Consumer Affairs, Food and Public Distribution K V Thomas said in a written reply to the Lok Sabha.  

The minister pointed out that the FMC had suspended futures trading in some commodities, but prices continued to rise even after suspension.

"... No purpose will be served by banning forward trading in essential commodities. Accordingly, the government does not propose to ban forward trading in essential commodities," he added. 

The minister noted that the committee set up by the government under the chairmanship of Abhijit Sen and the analysis done in the annual report of the RBI for 2009-10 have come to the conclusion that forward trading is not the reason for any inflation in prices of commodities in India. 

The RBI report has attributed inflation primarily to structural constraints in augmenting supplies, coupled with rising demand in the fast-growing economy, Thomas added.

At present, forward trading is suspended in toor, urad and rice, Thomas said, adding that trading is allowed in wheat, chana, barley, potato, mustard seed, refined soya oil, refined mustard oil, gur and sugar. 

On a question whether small and marginal farmers have benefited from forward trading in essential commodities, Thomas replied that these farmers have small or no marketable surplus of food crops and small quantities of cash crops.

"Hence, only a small percentage of farmers are involved in marketing their produce," Thomas said.

"Given the standard size of futures market contracts and mark-to-market daily obligations, it is not possible for them to trade in futures contracts in the present circumstances till the relatively more easily manageable 'option' contracts are permitted in commodity exchanges," he added. 

The minister informed that the "easily manageable 'options' contract" will be possible after amendment in the Forward Contracts (Regulation) Act.

Commodity exchanges are working on several models of "aggregation", in which organisations such as farmers' groups, Regional Rural Banks (RRBs), Farmer's Cooperative Marketing Boards (FCMB), etc, are trying to provide an interface between farmers and the exchanges, he added. 

Thomas cited the example of rubber producer cooperatives in Kerala on the issue of farmers participating in futures trading with organisational support.

However, the futures market has been benefiting the farmers indirectly to some extent, as they are now able to bargain for a better price, Thomas said.