There is no evidence to show that futures trading in commodities results in a surge in the prices of those commodities, says Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister.
In an address on ‘Some Perspectives on Growth and Inflation' at a seminar on the subject jointly organised by the RBI Staff College here and the Madras School of Economics, Dr Rangarajan observed, in response to a question, that among the commodities in which futures trading is permitted, the prices of some have gone up, while those of many others have not.
Even the Abhijit Sen Committee, which went into the question of whether or not futures trading in commodities, because of the speculation involved, leads to an increase in the prices of those commodities, in turn leading to inflation growth, was inconclusive.
The committee, Dr Rangarajan noted, did not conclude that the futures trading leads to price increase.
“My personal opinion is that futures trading does not contribute to price increase,” he said, adding that the final word on the subject will never be said as the question itself has been taken out of the realm of economics (and brought more under politics).
The question assumes relevance today when political parties (such as the DMK) have been saying in their election manifestos that they would fight against commodity derivatives.
Mr Prakash Karat of CPI (M) and Mr Tapas Sen, General Secretary, Centre of Indian Trade Unions (CITU) have always clamoured for ban on commodity derivatives, but more recently several non-Left political parties have also joined the call.
Recently a ‘Chief Ministers' Working Group on Consumer Affairs', which was headed by the Gujarat Chief Minister, Mr Narendra Modi, and included the Chief Ministers of Andhra Pradesh and Tamil Nadu, recently recommended to the Prime Minister a complete ban on futures trading in essential commodities.
In the past several political leaders have spoken against futures trading in commodities. For instance, the former Tamil Nadu Chief Minister, Ms J Jayalalithaa, once said that the traders were able to “manipulate the market” with just a computer, blocking huge stocks “by paying a relatively small advance” and offloading them with the prices rallied.
Mr Devendra Prasad Yadav (of Rashtriya Janata Dal), Chairman, Parliamentary Standing Committee on Food and Consumer Affairs, once said in reference to commodities derivatives that “on the one hand, farmers have not been able to reap the benefit of futures trading and, on the other hand, the consumer is made to pay high price on account of speculation and other market manipulations.”
Voices of the opposite opinion, such as of the Union Agriculture Minister, Mr Sharad Pawar, (who recently said that “there is no link between futures trading and the rise in prices of farm products,”) have been out-shouted by the pro-ban clamour.
Presumably with this in mind, Dr Rangarajan said today, “the last word on the subject may never be said.”