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Centre may ban futures trading

Futures trading allows buyers to fix deals at a pre-set price for a future date, which is mostly linked to global market prices, reports Arun Kumar.

business Updated: Apr 18, 2008 02:26 IST
Arun Kumar

The government may ban futures trading on almost all farm products and create a strategic reserve of wheat and rice, officials said as commodity prices kept the inflation rate above 7 per cent for the third straight week.

Wholesale price-based inflation rate eased to 7.14 per cent in the week ended April 5, after rising for five preceding weeks, according to official data released on Thursday. Most economists, however, predict prices will remain firm in the near term.

Futures trading allows buyers to fix deals at a pre-set price for a future date, which is mostly linked to global market prices. Some groups have been asking for a ban on the practice, saying it triggers speculation about prices of goods and, hence, could fuel inflationary expectations that the government wants to discourage. However, Agriculture Minister Sharad Pawar has in the past contested such arguments.

The ban, a senior government official told Hindustan Times, could help rein in inflation, which has risen to its highest in more than three years.

The official said the government was planning to clamp down on futures trading of several food items, including refined soya oil and palm oil, sugar, chana, potato, jute, maize and barley among others. The ban may be extended to cotton and jute, he said. The government has already banned futures trading in wheat, rice, tur and urad.

The official said there are plans to create a reserve of five million tonnes of wheat and rice, consisting of surpluses from domestic stocks and imported food grains. This will be over and above the buffer stocks of 4 million tonnes of wheat and 5.2 million tonnes of rice maintained by the Food Corporation of India.