Retain ban on futures, says Abhijit Sen
Though the committee he chaired is non-committal on what to do about futures trading, Prof Abhijit Sen himself believes the country should continue the ban on wheat, rice, urad and tur futures.
NEW DELHI: Though the committee he chaired is non-committal on what to do about futures trading, Prof Abhijit Sen himself believes the country should continue the ban on wheat, rice, urad and tur futures. He has also suggested a dekko at sugar and edible oils futures trading to assess whether or not they are providing any real benefit to industry players.
���The best course of action would be to identify the commodities where there is a possibility of futures trading affecting expectations that may influence inflation in essential commodities and insulate these from futures,��� Prof Sen has said in his supplementary note attached to the committee report.
���Therefore, the suspension of futures trading in the four sensitive commodities should continue and, in the case of sugar and edible oils, discussions with processors held on how much hedging benefits they derive from futures markets, and a decision taken accordingly,��� he added.
���The best course of action would be to identify the commodities where there is a possibility of futures trading affecting expectations that may influence inflation in essential commodities and insulate these from futures,��� Prof Sen has said in his supplementary note attached to the committee report.
���Therefore, the suspension of futures trading in the four sensitive commodities should continue and, in the case of sugar and edible oils, discussions with processors held on how much hedging benefits they derive from futures markets, and a decision taken accordingly,��� he added.
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Interestingly, the supplementary note by chairman Prof Sen is not part of the committee���s formal recommendations. The report was submitted on Tuesday to the government.
According to Prof Sen, data shows the transmission of international price pressures on domestic wheat prices was much lower after wheat futures were delisted last year. ���The recent experience with respect to wheat trade does provide evidence, albeit inconclusive, in support of critics who argue that futures trading may be associated with factors that can impede the operation of the public system of grain procurement, storage and distribution,��� he has said.
Prof Sen believes the jury is still out on whether there should be futures trading in commodities where the government intervenes directly. ���Both the literature on futures trading and empirical facts analysed in the report suggest there are inherent difficulties if futures markets are introduced for commodities where government actively attempts to influence prices and is also a large player in the physical trade,��� he has said.
In the case of other commodities, Prof Sen has suggested necessary corrections of the many weaknesses that have been identified in the report with respect to contract design and excessive speculation. ���Indeed, the required domain knowledge is rather scarce even in the national exchanges and with the regulator,��� he added.
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