The Hindu Business Line : Speculation over ‘deal’ between futures industry, Govt

Although it is said the suspension would be for four months, at this point of time, it looks unlikely that the four commodities would be relisted by early September

G. Chandrashekhar

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Mumbai, May 9

Is there a deal between the futures trading industry and the Government over the policy relating to commodity futures trading? The market is agog with speculative reports of an understanding between large business interests and the Government that the latter would suspend futures trading in a few commodities, but hold back imposition of commodity transaction tax (CTT).

On Wednesday, suspension of futures trading in four commodities — soyabean oil, rubber, chana and potato — was announced. The Union Finance Minister, Mr P. Chidambaram, had talked about delisting some more commodities (in addition to last year’s four) recently at Madrid.

Futures trading

Traders were circumspect and refused to comment on the possibility of any deal between the futures industry and the Government; but said they would welcome withdrawal of CTT. But with the Budget having been passed, it appears that CTT is here to stay.

The Left parties have been demanding that the Government stop futures trading in as many as 25 commodities.

It appears likely that New Delhi has succumbed to the pressure.

Although it is said the suspension would be for four months, at this point of time, it looks unlikely that the four commodities would be relisted by early September.

The Government would surely evaluate kharif 2008 crop prospects (especially of oilseeds and grains) before taking any decision.

The rate of inflation in the coming months would also have to be watched.

A major grievance of market participants was the abrupt suspension of all trading in the four commodities, which is likely to cause huge losses to those holding large positions with unfavourable closing prices.

Trade intermediaries asserted that existing contracts should have been allowed to run their full course.

Imported oils

A trader from Pune rued the decision to delist soyabean oil. He said importers would not be able to hedge their price risk and therefore, actual inflow of imported oils may slowdown in the coming months. After the news of delisting spread, both soyabean oil and mustard oil firmed up.

Representative of a crushing unit said, the marketing of soyabean crop harvested last October was complete and farmers were holding negligible quantities. Therefore, growers were unlikely to be affected by suspension of derivatives trading in soyabean oil, according to him.