Futures trading off but pulse prices stay

Govt banned futures trading in dal to curb inflation but prices have not fallen, only risen in some cases

It coluld well be a case of the government barking up the wrong tree to curb inflation. Despite the ban on futures trading in tur and urad last month, the prices of the two commodities have not fallen, rather they continue to rise in some cases, raising questions about the need or efficacy of the move.

The Forwards Market Commission had, on January 23, imposed a temporary ban on futures trading of these two commodities, instructing all exchanges to delist them until further notice. Since the ban, however, the prices have not shown a downward turn, but continue to hover at levels that prevailed prior to the delisting. While the average ruling prices of urad (black gram) were around Rs 3,000 per quintal mid-January, the February prices continued to remain at the same highs, sometimes crossing Rs 3,500.

A similar case prevailed when it came to tur (pigeon pea), which continued to sell at an average price of Rs 2,000 per quintal in Maharashtra, according to data provided by the Maharashtra State Agricultural Marketing Board. The prices are about the same in most parts of the country so the ban has come into question.

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Director of the Forwards Market Commission (FMC) Anupam Mishra admitted that futures trading of a commodity would not really impact their prices. “The futures market provides a platform for price discovery and risk management. It is nothing but a forecast of likely demand and supply and prices at a future point of time. It does not impact prices,” said Mishra. He, however, hastened to add that the ban was effected because of perceptions that markets and speculation were leading to the rise in prices.

According to officials from the FMC, the high prices, in all probability, are due to a mismatch in supply and demand of these two commodities. In fact, official figures seem to suggest just that. The production of pulses has stagnated in the last few years, even as the sown area under urad and tur in the current rabi season has gone down by around 3 and 6 per cent respectively.

Traders dealing online in these commodities have been worst hit. “We can only make profits by predicting what prices are going to be like in the future. With an immediate ban being enforced in January, many futures traders dealing in urad and tur were hit hard as they had to suddenly pull out of the market,” said Mumbai-based trader Kamlesh Thakkar. Traders feel a more acceptable solution would be to impose an upper limit on futures contracts held by individual traders in specific commodities. “No doubt there is speculation but it can be curbed by imposing limits on traders. For this to be successful, however, an active and vigilant market watchdog would be necessary,” said Hiren Pandya, another Mumbai-based trader.