FORWARD MARKETS Commission (FMC) director, Prabhakar R Patil, on Thursday said it was a false perception that prices of essential commodities were rising due to speculation in the commodity exchanges. “Commodities futures markets are just a platform for price discovery and risk management for the producer as well as the consumer.”
Talking to the media, Patil, who is in Indore on Thursday to attend a seminar of Multi Commodity Exchange of India (MCX), attributed the price rise to increase in per capita income without corresponding increase in agricultural production. “The increase in demand due to growing population has further contributed to the rise.”
FMC regulates forward markets in commodities through the recognised associations, recommends to the Government the grant/withdrawal of recognition to the associations organising forward trading in commodities and makes recommendations for the general improvement of the functioning of forward markets in the country.
“The wheat prices shot up in the futures market because traders came to know 6-7 months in advance that this year’s production was going to be hit,” Patil said adding that many exogenous factors contributed to the rise and no single entity is to be blamed.
When asked what steps had the regulator taken to ensure there was no price rigging in the markets, Patil said that open position limits in all the commodities have been brought down in near future. “We have put in place strict limits on daily fluctuations in prices and very stringent limits on positions, which members can hold. We also impose penalties if a member crosses the position limit. Over 50 per cent of our senior staff is dedicated to monitoring and surveillance work.”
Patil said that futures trading actually helped farmers plan their cropping pattern, based on forward prices on the exchanges. He, however, admitted to lack of proper dissemination of information. Patil informed that the government was mulling over a proposal to allow banks to participate in the futures market so that banks could also protect their interests in crop and agriculture lending by hedging in the markets.
MCX vice-president (head training and research and development) Chiragra Chakrabarty and vice-president (business development) Dharmesh Pandya were also present at the press conference.
Commodity futures trading have shown remarkable expansion in the last four years. Specifically, after the setting up of three nation-wide commodity exchanges trading in multiple commodities online, trading volumes have shown a phenomenal growth rate. The MCX alone generates an average daily volume of Rs 8,000 crore.
At present, only three nationwide multi-commodity exchanges viz, Multi-Commodity Exchange (MCX), Mumbai, National Commodity and Derivatives Exchange (NCDEX), Mumbai and National Multi-Commodity Exchange of India Ltd, (NMCE), Ahmedabad conduct trading in all permitted commodities.