High time to remove ban on commodity market

Last year, Forward Market Commission (FMC) suspended the trading of many agricultural commodities in the futures market. The reason for the ban was attributed to speculation in the futures market which was believed to have had led to the high rise in prices.

The decision of the Abhijit Sen panel report is still pending. But, reports from various sources indicate that the government may lift the ban that it had imposed last year.

Recently, NCDEX came up with an analysis on price data for traded essential commodities. The movement in the actively traded commodities actually, dipped by 5.17%. Examples of such commodities are chana, soyabean, sugar and maize. These commodities have a cumulative weight of 6.65% in the whole sale price (WPI) index. On the other hand, price change in non-traded essential commodities was 9.04%. These included rice, wheat, jowar, sunflower, cotton seed, barley, etc. and have a weight of 17.6% in WPI.

Price for all traded commodities rose by 5.84%. These have a weight of 7.78% in WPI. Overall inflation last year was around 5%. Therefore, rise in prices of actively traded commodities can be said to be in line with the overall level of price inflation.

It should be kept in mind that a detailed analysis of annual price change in actively traded essential commodities that are directly consumed, excluding oilseeds and cakes, registered a fall of 0.67%. These have a weight of 5.31% in the WPI.

Therefore, the ban put by the government is in contrast with the recent findings. Prices for the agriculture commodities have rose across the board in the domestic market in line with the global commodity price trends. Reports coming from various international markets reveal that the production of many commodities has fallen. It is argued everywhere that the production might go down even more.

Hence, this mismatch in the demand and supply has led people taking various advantageous positions in the commodity markets; even speculation. But that is a part of a matured market. It is high time that the government lifts up the ban as the rise in prices was from the supply side. Also, by widening the market with various other commodities to trade, the government in fact, would further deepen and strengthen the market.