Thursday May 8, 08:28 PM
India suspends 4 commodity futures on price worries |
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By Sourav Mishra
MUMBAI (Reuters) - India has suspended futures trading in four commodities with immediate effect in its latest move to rein in soaring inflation, but industry officials said the step would not ease price pressures.
India has taken a series of fiscal measures to bring down prices recently, and the commodities market regulator said trading in futures contracts in soyoil, potato, chana or chick pea, and rubber had been suspended for four months.
The government, facing state and national elections in the next 12 months, is keen to show it is tackling rising food prices, which contributed to a surge in annual inflation to 7.57 percent in mid-April, its highest in more than three years.
"There was a perception in some political quarters that futures trading in agri commodities are responsible for a price rise in the spot... which led to suspension of four commodities," B.C. Khatua, chairman of the market regulator, the Forward Markets Commission (FMC), told Reuters on Thursday.
The ruling coalition's communist allies urged a ban on futures trading, saying it stokes inflation, and the government took the step although a panel it appointed found no clear link between futures and rising spot prices in a report in April.
Soybean, rapeseed or mustard seed, guar seed and turmeric prices and volumes picked up as investors switched out of the suspended contracts.
The September soybean contract closed up 2.9 percent at 2,160.5 rupees ($51.7) per 100 kg and the July rapeseed contract rose 2.5 percent to 581.65 rupees per 20 kg.
NO PANACEA
India banned futures trading in rice, wheat and two pulses in early 2007. Its decision to suspend four more commodities was not a total surprise to the market as inflation accelerated, stoked by oil, food and metals prices worldwide.
"Ban on futures in no way will... help in lowering inflation as prices in edible oils are dependent on demand and supply situation and prices of edible oils are high internationally," said Soybean Processors' Association spokesman Rajesh Agrawal.
K.C. Bhartiya, president of the Pulses Importers' Association of India, also doubted the move would bring prices down. "In the long run it will adversely affect farmers and importers who were hedging their risk on the exchange platform."
In recent months, New Delhi has also banned some exports and lowered duties on some imports to tame prices and the central bank has tightened policy to curb excess cash in circulation.
India allowed commodities futures trading in 2003 and the combined turnover of its 24 commodity exchanges totalled 40.66 trillion rupees ($975 billion) in 2007/08.
FMC Chairman Khatua said the suspended and banned futures would be reviewed in September and were likely to resume then.
But the National Commodity and Derivatives Exchange (NCDEX) CEO R. Ramaseshan said the suspension would impact business. It derives about 85 percent of its trade from agri-commodities.
"It is a setback for us. Around 20 percent of our turnover was contributed by soyoil and chana," Ramaseshan said. "We will have to re-look at the portfolio of commodities to remain viable as an exchange."
Kailash Gupta, managing director of leading rubber exchange the National Multi-Commodity Exchange of India, said the suspension would undermine a new system of bank loans granted against warehouse receipts to futures market participants.
"Banking sector, which had started giving loans against warehouse receipts, will now lose confidence in the futures market," Gupta said.
(Additional reporting by Rajendra Jadhav, Abhishek Shanker and Debiprasad Nayak)
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