Govt may take China route as way forward

NEW DELHI: The government may take the Chinese route to convince its Left allies that forward trading is important both for farmers and exporters.

Just a week before the Abhijit Sen committee report on forward trading is scheduled to be submitted, deputy chairman of Planning Commission Montek Singh Ahluwalia told SundayET that India can���t ignore the active commodity market in China.

���People don���t realise that there is quite an active forward market for commodities in China. Also, events in India have shown that the ban on forward trading did not alter the underlying uptrend in wheat prices which reflects what is happening in world market. Equally, there are other products where forward trading is allowed which have not experienced inflation,��� Mr Ahluwalia said.

In the wake of rising commodity prices, the Left has been constantly mounting pressure on the government to ban forward trading in commodities which come under the Essential Commodities Act. The government had earlier banned rice, wheat, arhar and black gram (urad) for forward trading.

Joseph Massey, CEO of Multi Commodity Exchange (MCX), pointed out that three of the Chinese commodity exchanges, Shanghai Futures Exchange (SHFE), Zhengzhou Commodity Exchange (ZCE) and Dalian Commodity Exchange (DCE), figure among the top 10 commodity future exchanges in the world.

���China may be a controlled economy but this is an indication that they too believe in market-driven pricing because of the advantage it offers to the entire supply chain connecting producers and consumers. They have also realised that developing a well-regulated market is the only way forward to integrate better with global market as each economy depends on international market for trade,��� Mr Massey said.

The Left, however, is not liking the Chinese comparison. CPI���s national secretary D Raja said, ���Let���s not bring the Chinese angle into it. Let the government prove that forward trading has actually helped the farmers. We are demanding the ban as it has been counter-productive to farmers.���

An analysis of four banned commodities by Centre for Monitoring Indian Economy (CMIE) has shown that prices of rice, tur and wheat have increased despite the ban. For rice, there has been a price rise of over 20% from the time of its ban.

���In fact, sugar and potato are two classic examples of commodities which have forward trading and yet their prices have not increased over the last one year,��� Mr Massey said.

A recent study carried out by United Nations Conference on Trade and Development (UNCTAD) of five leading commodity futures exchanges spanning the major developing regions, Bolsa de Mercadorias & Futuros (BM&F), Brazil; Dalian Commodity Exchange (DCE), China; Multi Commodity Exchange of India (MCX); Bursa, Malaysia; and the SAFEX Agricultural Products Division of JSE, South Africa, found that exchanges can yield critical impacts such as better sowing and selling decisions by farmers, empowering the entire ecosystem through better transparency, quality standards and infrastructure especially in developing countries like India and China.