Commerce Minister Shri Kamal Nath has conceded that Government may consider banning futures trading in essential commodities. This is one of the key demands that the Left Parties have been insisting on for the last few months for curbing inflation.
Everyone can see that the steps taken so far by the Government have singularly failed to curb inflationary pressures. Forward Trading in Agricultural goods along with the permission to big Corporate entities, domestic and foreign, to buy foodgrains directly from the farmers and without any ceiling on the amount so bought and stockpiled, has been facilitated by the option to protect their stockpiling by entering into futures contract at high prices.
That the Futures Trade encourages hoarding, especially in view of the entry of big corporate entities in the grains trade and tend to push up spot prices too has come out vividly by the demand of the National Commodity and Derivatives Exchange demanding to exempt the commodities traded in the exchanges from the limits placed on the permitted level of stock build up by the operators in the Futures market.
Mr. Kamal Nath has talked of waiting for the Sen Committee Report on Futures Trade. The interim findings of this Committee are typically ambivalent. It says that, “It could not be concluded emphatically whether Futures Trading fuelled volatility or price rise in agri commodities”. This is neither fish nor flesh. Nowhere has the Left suggested that this alone is responsible for this spurt in prices. But it certainly paves the way to hoarding and contributes to price rise. The Left has suggested a slew of measures, such as ban on Futures Trading, strict implementation of Essential Commodities Act to dehoard huge stocks with MNCs and Corporate Houses (not just a few raid on the small fish), Government procurement by paying remunerative prices for their produce to farmers, and above all restoration of universal, public distribution system for supplying 14 essential commodities at fixed and subsidized prices, withdrawal of the hike in petrol and diesel tariff, etc. CPI hopes that government will urgently take these steps and not limit itself to a few fiscal measures. The anti price rise struggle will further escalate in the coming days, to ensure that the above urgent steps are taken.
To keep things in perspective, we must remember that India used to be closer to the Soviet Union than the United States--especially in the opening decades of the Cold War. Aside from the CPI and the CPIM, vestiges of Marxist-Leninist influence are not hard to find, such as the Gosplan-ish Five Year Plans which India still puts out, the latest being for 2007-2012. Given the rather tenuous grasp on power by the Congress Party-led coalition, it is no surprise that its leaders are sending signals that they may back down yet again. What is interesting is that government commissioned research does not suggest that futures trading necessarily leads to higher prices, but the government is nonetheless being pressured effectively by the CPI. The quest for the worldwide liberation of the workingman lives on--in India, at least. Avast, ye capitalist filth! From Bloomberg:
may have to suspend trading in some food futures to arrest inflation if parliament calls for it, Finance Minister Palaniappan Chidambaram said. ``If rightly or wrongly people perceive that commodities- futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to heed that voice,'' Chidambaram said in an interview in Madrid. India
Prime Minister Manmohan Singh's communist allies want to ban futures trading in cooking oil, sugar and other commodities, saying speculators are driving up prices and fanning inflation. The government halted futures trading in wheat and rice last year and lentils in 2006 to check a surge in domestic prices of the commodities.
``The pressure is to suspend a few more food articles,'' Chidambaram said without identifying the products. ``It may be politically wise to do that for a short period to see if it has any impact at all on inflation.''
A panel formed by the government under economist Abhijit Sen to study the impact of futures trading on prices of staple foods, this month suggested maintaining the ban on rice and wheat. It didn't recommend extending the ban to other commodities, saying there was no conclusive evidence to suggest futures trading contributed to price increases.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. Online trading in commodity futures in
started in 2003. Domestic traders and producing and consuming companies are the main participants in India 's commodity exchanges, compared with the 13 million individuals who invest in stocks. Overseas funds aren't allowed to trade in India 's commodity futures. India
Chidambaram said that
may have to live with ``the current level of inflation for a few more weeks.'' India's inflation accelerated to 7.57 percent in the week ended April 19, the fastest pace in more than three years as prices of food and manufactured products rose. ``If food prices continue to rise and demand is high, as it is in India today, then I am afraid we may have to live with the current level of inflation for a few more weeks,'' he said. ``We thought inflation had peaked at about 7.3 percent. We were surprised that it moved up to 7.57 percent.'' India
Singh, who lost ground in eight state elections since the beginning of January 2007, wants to cool inflation to bolster his Congress party's chances of retaining power in national elections scheduled before May 2009. Inflation erodes the spending power of people, particularly in a country like
where the World Bank estimates half the 1.1 billion population live on less than $2 a day. Singh last week said reining in inflation was the government's top priority, informing business leaders not to expect an interest rate cut anytime soon. India
The central bank unexpectedly ordered lenders to set aside more reserves on April 29, raising the cash reserve ratio to 8.25 percent from 8 percent, the highest since March 2001. While doing so, the bank also increased its inflation target to as much as 5.5 percent in the year to March 31, above its previous target of 5 percent.
Chidambaram, who says the ``tolerance'' level of inflation in India is 4 percent, has in the past two months banned export of edible oils, rice and wheat, and cut levies on imports of edible oils, joining China, Malaysia and Thailand in taking steps to secure food supplies.
also capped retail fuel prices and last week scrapped import duties on steel products including pig iron, hot-rolled coils, ferrous alloys and zinc and imposed an export tax on other steel products to augment local stocks. India
The combination of higher interest rates and slowing exports may curb
's growth to between 8 percent and 8.5 percent in the year to March 31, according to country's central bank. India India's $912 billion economy, Asia's third biggest, has expanded at a record average pace of 8.7 percent since 2003.
``It's not the end of
's growth story,'' Chidambaram said. ``The moderation reflects world trend. It's simply a pause and then we will run.'' India