October 12, 2008

Consumer affairs ministry sees no link between price rise and futures

It is reported that India’s consumers’ affairs ministry has opposed continuing with the ban on some farm commodities, stating that there appears to be no correlation between price rise and trading of these items. The ministry has expressed its view to key economic ministries.

The consumer affairs ministry, which is the nodal ministry for commodity exchanges, has based its findings on independent studies carried out on price movements of various commodities both perishable such as potato and onion as well as non perishable such as pulses. Findings of a study carried out by IIM Lucknow also conclude that price movements of most of these commodities have been independent of trading in the futures market.

Citing examples to justify its stance, the ministry has quoted price movements of commodities such as steel and cement. While prices of steel remained firm and escalated steeply despite being traded, cement saw sharp price spikes even though it is not traded on commodity exchanges.

It argued that prices of some non listed commodities have also risen. For example, the price of iron ore has witnessed a substantial increase through it is not traded on the exchanges. It also argued that though future trading in rice was banned in 2007, yet its wholesale price rose about 26% in one year. Global prices of the commodity have gone up from USD 400 USD 500 per tonne to over USD 700 per tonne and expected to cross USD 1,000 per tonne by June 2008.

The ministry has also cited the Chinese example, where there has been brisk trading in agricultural commodities like soybean, maize, sugar and wheat. It said trade of essential commodities in China continues irrespective of price movement.

The ministry’s stand comes even as policy makers are debating the findings of the Abhijit Sen Committee report that went into the issue of commodity futures trading and its possible impact on spot prices. Similar views have also been expressed by the Planning Commission and finance ministry which are working overtime to rein in prices of essential food items.

Currently, more than 100 commodities are traded on 3 national and 21 regional exchanges. The volume of trade is stated to be INR 3600,000 crore in 2006-07, a significant jump from INR 1300,000 crore in 2003.