The Hindu Business Line : Agri-commodity futures facing political heat

Advertisement

Mumbai Feb. 22 The Union Agriculture and Food Minister, Mr Sharad Pawar's candid admission that the future of agri-commodity futures trading in the country hangs in balance and that he would not any more be able to resist political and other pressures for a clampdown on such trading sends out a strong negative message to the country's commodity trading community that this market should not be taken for granted.

It is conceivable that, at one level, given his position in the Government, Mr Pawar desires to distance himself from all the flak this market has been attracting, rightly or wrongly, from within the Government and outside.

It needs no reminder that Mr Pawar is the Union Minister for Agriculture (virtually in-charge of farm output growth and remunerative prices to growers) while at once being the Minister for Food and Consumer Affairs, charged with the responsibility to advance consumer interests.

Consumers worst hit

It is a pity, neither farmers nor consumers have been a happy lot since the new Government took over. Farmers' suicides have been growing and agrarian crisis has deepened.

Of late, consumers have been the worst hit because of galloping inflation with prices of essential food products going through the roof.

All the price control measures initiated by the Government over the last 10 months or so have been of little avail. Inflation has been climbing menacingly.

The poor have been the worst hit; and this country has millions of poor people.

Widening disconnect

The disconnect between urban and rural areas is palpably widening because of extremely slow rate of farm growth (just about 2 per cent a year), even though, admittedly, over 55 per cent of the population earn their livelihood from agriculture and related activities.

On the other hand, manufacturing and services sectors have been growing at about 10 per cent a year while employing only 30 per cent of the workforce.

Purchasing power in the hands of this section of the population has been rising. Given the extant low per capita consumption level, every increase in income translates to higher demand.

There is greater propensity to consume all goods and services including food products.

Unfortunately, supply growth has trailed demand growth in recent years because of lack of adequate attention to agriculture. Public investment has been declining. Imports too have been expensive because of rising international prices.

Clearly, the Government is at its wit's end. Desperate measures to remedy desperate situations have proved futile. Unfortunately, there are no short cuts to ensure agricultural growth.

It is a process that needs commitment and patience in addition to investment.

The Government has betrayed none of these. The policymakers are surely culpable for the sorry state of affairs in the agri-commodity market.

The process of sequencing of reforms has been faulty.

The policymakers failed to think through issues logically and perhaps were carried away by internal and external pressure to open up markets, without paying attention to structural issues of the country's farm sector. The Government encouraged setting up of a modern superstructure in the form of online commodity futures exchanges without attending to the weak, distorted and tradition-ridden foundation, that is the physical market for farm goods.

Cash vs futures

Logically, futures market proceeds from the cash market.

A weak cash market can never guarantee a healthy futures market.

Thus, the current `political risk' this market faces was something waiting to happen. Market participants and policymakers have had a number of warnings.

The issue at hand is not whether futures trading has resulted in artificial price rise; it is that whether the Government has done all that it should to strengthen the `real economy' and generate crops big enough to meet a substantial part of growing demand. In an economy characterised by shortages and weak governance, it would be unwise to allow too much speculative funds to chase limited supplies.

Mr Pawar may succeed in distancing himself from the emerging crisis situation in the commodity derivatives market.

But his tenure as a minister will be judged by the performance of the real economy and what he does for lifting the farm sector from its present morass.

More Stories on : Commodity Markets | Economy | Politics

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
2nd round of winter rains for North from weekend

Morgan Stanley, JM Financial part ways

BSNL targets $20 billion revenue in 3 years

Why consumer goods prices have been under check for three years

New players, competition keep consumer goods prices under check

Govt invites bids for its residual Maruti stake

Chip fabrication companies to get fiscal incentives

Bank, auto & pharma stocks lead the day's fall

Agri-commodity futures facing political heat

Kotak AMC joins hands with T. Rowe for global fund

Rlys to modernise stations on public-pvt partnership basis

`No nationwide raids on stockbrokers'