Trade with Commodities: Ban on wheat futures lifted

Friday, May 15, 2009

Ban on wheat futures lifted

NO RESPITE FOR RICE, URAD & TUR FUTURES; CROP SITUATION IN PULSES CRITICAL

THIS could go down as one of the most politically-sensitive decisions before the formation of the new government.
    A little more than two years after it was imposed, the government has lifted the ban on wheat futures. The move comes even as the country is expected to record a bumper harvest of wheat for the second consecutive year.
    "The ban on wheat has been lifted, and now the exchanges need to bring their contracts for the commission's approval," an official in the Forward Markets Commission (FMC)—the commodity futures market regulator—told ET on Friday. "The wheat market has stabilised and India will have recorded two continuous seasons of record harvests. Also, reports have shown that the futures market has not been responsible for the rise in prices of essential items such as wheat," added the official, in justification of the ban being lifted.
    However, there are fears that should the Left be part of any coalition, the decision could again come under review.
    The regulator, he explained, had to delay the announcement as the Election Commission's model code of conduct was in place until Thursday. The decision has been communicated to the commodity exchanges, though a formal notification is yet to be issued.
    Asked on the possibility of lifting the ban on rice, urad and tur, which were also suspended from futures trading in early 2007, the official said the time was not yet ripe for lifting the ban on these commodities. He termed the crop situation in pulses "critical", and said due to its many varieties, designing a successful futures contract for rice was difficult. "The futures volume in rice was pretty low even when the commodity was traded," he explained.
    Futures in wheat, a politically-sensitive commodity like sugar, were banned in February 2007 on fears that speculation in exchange-traded futures had distorted the physical market prices of essential food items and led to runaway inflation. Soon after the commodity was delisted from the commodity exchanges, the government constituted a blue ribbon panel under noted economist Abhijit Sen to examine the impact of futures trading on spot prices and whether the former was responsible for food price inflation.
    However, the report, which was submitted in April last year, said there was no conclusive evidence to prove that futures prices led to price inflation in the spot market.
SECURE FUTURE(S)
India is expected to record a bumper harvest of wheat for the second consecutive year
Reports have shown futures not responsible for rise in prices of essential items such as wheat
There are fears that if the Left is part of any coalition, decision could again come under review
Futures in wheat were banned in Feb 2007 on fears that speculation in exchange-traded futures had distorted market prices of essential food items