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Instead of immediately banning futures trading in farm products, P. Chidambaram has announced setting up of a committee which will give its report in two months. This is in spite of the clear writing on the wall in the light of continuous rise in retail prices of onions, sugar and other essential items. Who is calling the shots at the Finance Ministry? Who is concerned about the plight of the poor?
COMMODITY prices have always known to influence voting patterns in elections and political parties have a history of colluding with sympathetic businessmen to inflate or deflate prices of essential commodities to swing votes. Not too long ago, soaring onion prices - that were alleged to have been engineered - helped the Congress beat the ruling BJP in Delhi at the 1998 election. It is being said that the same method was used to increase the sugar prices in Maharashtra recently, thus leading to rise in the share price of companies like Bannari Amman Sugar, Dhampur Sugar and Bajaj Hindustan.
In spite of Congress personally benefiting from allegedly engineered prices till some time back, it is surprising why P. Chidambaram and company under the patronage of the so-called guru Dr. Manmohan Singh continued to look the other way while the prices of essential commodities continued to rise unabated due to speculative futures trading. As late as July last year, the Government continued to deny any move to ban futures trading in spite of concerns raised in this regard by those aware. On the sidelines of a FICCI meeting, Union Consumers Affairs Secretary, L. Mansingh, had said in July 2006: “There is no question of banning future trading in essential commodities. Future trading has stabilised volatility in prices." In September last, The Tamilnadu Chamber of Commerce and Industry called for a ban on online trading of all essential commodities and its President, S. Rethinavelu, said since the withdrawal of stock holding limits and licensing requirements under the Essential Commodities Act in 2002, the items have been transported and sold without any constraints all over the country.
Only when a hue and cry was raised by some sections of the media mirroring concern over rising prices of food articles and demand to ban futures trade in farm products, the Government has woken up and said it would study the impact of this on prices of essentials. It has also announced setting up of a Committee headed by Planning Commission member Abhijit Sen, which will give its report in two months. However, P. Chidambaram still did not confess that speculative trading was responsible for price rise and sidetracked the issue in his budget speech by blaming global commodity price and supply constraints as reasons for increase of prices of essential commodities like wheat, pulses and edible oils.
It seems that the Government is playing in the hands of some vested interests and their like-minded media groups who are carrying the pleas from investment gurus such as Jim Rogers (a big commodity bull) to let in foreign investors and speculators into the Commodity Markets. The Government is not realizing that if that happens, then rampaging commodity speculation will push up the prices of essential commodities so high that it can only lead to a bloodbath.
Physical commodity contract design in India too remains lopsided and favours the speculators. In the US, commodity contracts are physically delivered while in India this system of mandatory physical delivery was done away with due to reasons best known to our worthy gurus of market economy. Consequently, large scale speculators and investors, least related to the industry, came in leading to bullish prices.
There are still two months for the Abhijit Sen committee to give its recommendations. Till then P. Chidambaram has ruled out new contracts in wheat and rice in the futures market. However, it is too little done too late. If Abhijit Sen is really sincere about the plight of the poor, then we already know what his recommendations are going to be. There is no other path to ban all such trade with immediate effect.
In spite of Congress personally benefiting from allegedly engineered prices till some time back, it is surprising why P. Chidambaram and company under the patronage of the so-called guru Dr. Manmohan Singh continued to look the other way while the prices of essential commodities continued to rise unabated due to speculative futures trading. As late as July last year, the Government continued to deny any move to ban futures trading in spite of concerns raised in this regard by those aware. On the sidelines of a FICCI meeting, Union Consumers Affairs Secretary, L. Mansingh, had said in July 2006: “There is no question of banning future trading in essential commodities. Future trading has stabilised volatility in prices." In September last, The Tamilnadu Chamber of Commerce and Industry called for a ban on online trading of all essential commodities and its President, S. Rethinavelu, said since the withdrawal of stock holding limits and licensing requirements under the Essential Commodities Act in 2002, the items have been transported and sold without any constraints all over the country.
Only when a hue and cry was raised by some sections of the media mirroring concern over rising prices of food articles and demand to ban futures trade in farm products, the Government has woken up and said it would study the impact of this on prices of essentials. It has also announced setting up of a Committee headed by Planning Commission member Abhijit Sen, which will give its report in two months. However, P. Chidambaram still did not confess that speculative trading was responsible for price rise and sidetracked the issue in his budget speech by blaming global commodity price and supply constraints as reasons for increase of prices of essential commodities like wheat, pulses and edible oils.
It seems that the Government is playing in the hands of some vested interests and their like-minded media groups who are carrying the pleas from investment gurus such as Jim Rogers (a big commodity bull) to let in foreign investors and speculators into the Commodity Markets. The Government is not realizing that if that happens, then rampaging commodity speculation will push up the prices of essential commodities so high that it can only lead to a bloodbath.
Physical commodity contract design in India too remains lopsided and favours the speculators. In the US, commodity contracts are physically delivered while in India this system of mandatory physical delivery was done away with due to reasons best known to our worthy gurus of market economy. Consequently, large scale speculators and investors, least related to the industry, came in leading to bullish prices.
There are still two months for the Abhijit Sen committee to give its recommendations. Till then P. Chidambaram has ruled out new contracts in wheat and rice in the futures market. However, it is too little done too late. If Abhijit Sen is really sincere about the plight of the poor, then we already know what his recommendations are going to be. There is no other path to ban all such trade with immediate effect.
2 comments:
Firstly, sugar prices are on a decline and have fallen from Rs 25/kg last January to Rs 17/kg now.
Secondly, the current small rise in prices in Maharshtra has more to do with government intervention and not futures market.
PLEASE GET FACTS RIGHT ON ANYTHING THAT GOES FOR PRINT -- on paper or internet! Words are ALWAYS mightier than swords.
And now my comments please
Does a ban help?
Should the government always get into banning something to hide inefficience?
Would a ban of futures trading of any commodity help in maintaining prices?
These are pertinent questions.
The whole world uses commodity market to hedge risks. We use it to create risks. Whose fault? Government's?
Also what are essential commodities? Has this segmentation really helped our poor population? Rather it has led the rich to become richer. But overall, our country is growing. Poverty is on a decline. We need policy changes to improve things rather than banning when some policies have started working.
We need to increase liquidity in the commodity market so that none can use it for their petty benefits.
--- Alchemist
(comments welcome at ritzx25@gmail.com)
Firstly, sugar prices are on a decline and have fallen from Rs 25/kg last January to Rs 17/kg now.
Secondly, the current small rise in prices in Maharshtra has more to do with government intervention and not futures market.
PLEASE GET FACTS RIGHT ON ANYTHING THAT GOES FOR PRINT -- on paper or internet! Words are ALWAYS mightier than swords.
And now my comments please
Does a ban help?
Should the government always get into banning something to hide inefficience?
Would a ban of futures trading of any commodity help in maintaining prices?
These are pertinent questions.
The whole world uses commodity market to hedge risks. We use it to create risks. Whose fault? Government's?
Also what are essential commodities? Has this segmentation really helped our poor population? Rather it has led the rich to become richer. But overall, our country is growing. Poverty is on a decline. We need policy changes to improve things rather than banning when some policies have started working.
We need to increase liquidity in the commodity market so that none can use it for their petty benefits. Have you ever heard anyone complaining that US$-INR or gold prices are strengthening following futures market?
comments welcome at ritzx25@gmail.com
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