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Will govt lift suspension on commodity futures?

Published on Thu, Sep 04, 2008 at 14:14 | Source : CNBC-TV18

Updated at Fri, Sep 05, 2008 at 14:32

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By Ahijit Neogy , CNBC-TV18

The suspension on futures trading in commodities like soya, chana, potatoes and rubber expires on September 6. The Forward Markets Commission has made a strong pitch for trading to be restarted in these commodities.

There are four commodities in which trading has been suspended, but not banned. The Forward Markets Commission , the regulator for commodities trading in the country, has made a strong pitch to the Consumer Affairs Ministry, which is a nodal ministry, saying there is no case for actually increasing the suspension limit.

The Ministry said that on September 6 the suspension notification comes to an end and it should be revoked. Their contention is based on the fact that after these commodities were suspended from futures trading, prices have actually increased. It doesn't prove that banning or suspending futures trading can actually influence spot price and bring them down.

Rubber prices are up from Rs 120 per kg in May to Rs 142 per kg currently. Similarly, soya prices are up from Rs 58 per kg to Rs 65 per kg at present. FMC said the suspension of futures trading will harm price discovery and encourage more illegal trading.

Also, they are taking umbrage to the Abhijit Sen Committee findings, which actually said there is no conclusive evidence to link future prices with spot prices. The Consumer Affairs Ministry is broadly in agreement with this view. The Commerce Ministry has also come around to this view after initially opposing this issue.

The government could have lifted this suspension earlier, but for the Left which was vociferous in demanding a suspension on futures trading. But it is no longer with it politically. The government because of the inflation situation may want to give out the right signals and still ensure that the ban is in place.