Backwards and forwards

Abhijit Sen committee is perhaps a unique one in the annals of India’s babudom — its members had a different view from the well-known economist who headed this committee.

Is the UPA government any wiser after the Abhijit Sen committee submitted its report on whether forward trading has impacted agricultural prices? Will it now ban such trading as demanded by the Left parties? The Sen committee’s brief was not to recommend a ban but to investigate the influence of futures trading on the prices of essential commodities. This it did for 24 agricultural commodities, but its findings are somewhat ambiguous — like most bureaucratic exertions, perhaps — to instruct the government on what to do. Perhaps the UPA wanted it only this way, as there are deep-seated divisions even within the Cabinet on the advisability of banning futures trading.

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This committee is perhaps a unique one in the annals of India’s babudom — its members had a different view from the well-known economist who headed this committee. Three members, in fact, submitted separate notes to the common main report. As if that weren’t bad enough, Mr Sen submitted his own individual note. With this bizarre state of affairs, what is the sanctity of the committee’s findings? “Indian data analysed in this report does not show any clear evidence of either reduced or increased volatility of spot prices due to futures trading,” it noted. Also that the period “during which futures trading has been in operation is too short to discriminate adequately between the effect of opening up of futures markets and what might be the normal cyclical adjustment.” Figure that one out.

There are no prizes for guessing that this report will be shelved after the fire-fighting over inflation dies down. But before this is done, there is warrant to consider what the committee’s head felt regarding this matter. Although the committee was divided over the ongoing ban on rice, wheat, urad and tur dal, Mr Sen felt it must continue for these items: futures trade will not work efficiently for rice and wheat in which the government has a significant role to play in determining spot prices. There is, thus, a need to reform physical spot markets and bring them under a regulator. And before the government decides to revive futures trading in such commodities, it should set out its plans for the procurement and public distribution system.