Ban on futures trading to go

By Savvy Soumya Misra
Published: Friday 31 August 2007

the ban on futures trading in essential commodities is likely to be lifted. The expert committee under Abhijit Sen backs the idea. The committee was set up in March 2007 to assess the impact of futures trading--trading commodities at a future date--on agricultural commodities such as rice, wheat and pulses, and suggest ways to increase farmers' role in it. It was scheduled to submit the report by August 2, 2007, but recently sought a third extension.

Futures trading was banned early this year to contain inflation triggered by supply constraints. Experts, however, believe the ban was more of a political decision than economic. "The ban was completely unreasonable," says a member in the committee. Sukhpal Singh of iim- Ahmedabad also favours a repeal of the ban. "For a liberalised economy, agriculture has to become an open market," he says.

But not everyone is convinced. "Our farmers are not adequately informed about the market. As a result, their interests get compromised," says Devinder Sharma, food and trade policy analyst.

"Once futures trading is allowed, the minimum support prices will be phased out. This could be disastrous. When the markets slump farmers will lose. Unless the government takes adequate steps to ensure their security, they will resort to distress selling," says Sharma. Experts like him strongly feel that the ban on futures trading should be lifted only after the government puts in necessary support systems to ensure farmers' security (see box: Ensuring security).

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