The Hindu Business Line : Rumours create panic in commodity markets

Strong rumours of the Centre bringing back storage and licensing controls under the Essential Commodities Act (ECA) have created a panic-like situation in the agro-commodities markets.

Prices of most commodities, particularly pulses, fell on Thursday on the National Commodity and Derivatives Exchange (NCDEX).

The August contract for urad registered a decline from Rs 2,772 to Rs 2,655 per quintal, with tur (Rs 2,591 to Rs 2,545), chana (Rs 2,473 to Rs 2,420) and masur (Rs 1,820 to Rs 1,791) also following suit. A similar drop was seen in wheat (Rs 850 to Rs 844), sugar medium (Rs 1,946 to Rs 1,937), guarseed (Rs 5,087 to Rs 4,957), potato (Rs 573.80 to Rs 565.80) and pepper (Rs 9,687 to Rs 9,411).

The impetus for the bearish sentiment was the news circulating of a possible rescinding of the removal of (licensing requirements, stock limits and movement restrictions) Specific Foodstuffs Order, 2002 under the ECA.

The order, issued by the previous NDA Government on February 15, 2002, did away with the licensing of dealers, while providing them full freedom to "buy, stock, sell, transport, distribute, dispose, acquire, use or consume any quantity of wheat, paddy/rice, coarse grains, sugar, edible oil seeds and edible oils".

Subsequently, on June 16, 2003, the scope of the order was extended to pulses, vanaspati, gur and wheat products as well.

The order further had an overriding effect, with the State Governments stripped of the powers to unilaterally issue the ECA orders imposing licensing, storage or movements restrictions. Any such move now requires prior concurrence from the Centre.

In recent weeks, there has been an increasing clamour from the Opposition and also sections of the ruling alliance to do away with the 2002 Order and restore the powers of the State Governments to take action against alleged hoarders.

CMs Meet

The issue featured at a meeting of the Chief Ministers of Congress-ruled States on July 5, convened by the Party President, Ms Sonia Gandhi, to discuss measures for controlling spiralling prices of essential commodities.

Since then, there has been a general talk about the Centre likely to give in to the demand, notwithstanding its anti-reform implications. The rumours got strengthened with the Finance Minister, Mr P. Chidambaram's statement in the Rajya Sabha on Tuesday that the Chief Ministers could pass control orders under the ECA to deal with price manipulation, black-marketing and hoarding.

At the same time, he reiterated that these would have to be done in consultation with the Centre.

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