The Hindu Business Line : No justification in ban on futures trading: Assocham

Mumbai, May 20 Futures trading is a price discovery mechanism and there is no indication of it causing inflation in the country, said the President of Associated Chambers of Commerce and Industry of India, Mr Venugopal N. Dhoot.

Mr Dhoot said there was no justification in banning futures trading. The idea was misconceived, and a ban on futures will only make the economy bereft of a potential risk management and price discovery mechanism. The Government could consider putting a cap on the exports instead, he felt. He was speaking at function organised to release an Assocham study ‘Current inflation in India’, here.

Mr Dhoot said, during the last three months there has been a discernible pattern of increasing export tariffs and decreasing import tariffs on grains and oilseeds globally. The pattern was to keep domestic production off the global market while lowering barriers for acquiring grains and oils from the global markets.

In the Indian context, the concept of ‘threshold inflation’ was introduced by the end of the 1990s to identify the level of inflation from which adverse consequences begin to set in. The RBI presently has a benchmark of 5 per cent, though theoretical claims are that the threshold varies between 4 and 7 per cent, he said.

During 1998-2007, wheat and rice production had recorded negative annual growth rates — wheat at -1.16 per cent and rice at -0.1 per cent. The result was that though coarse cereals have grown at the rate of 2.27 per cent, the total cereal growth rate has been pulled down, and touched -0.11 per cent. In contrast, pulses touched a 1.6 per cent growth rate. However, the total foodgrains growth remained almost zero. This has been associated with stagnation in net sowing area and has put the country’s food security in peril.

Futures trading was not responsible for the rise in WPI for cereals. Prices of rice and wheat increased mainly after February 2007 when futures trading in these commodities had been banned, he said.

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